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The Expectations vs. the Realities

It's always interesting to look back a year later and wonder: What did we get right? What did we miss?

Last year's Expectations & Market Realities in Real Estate report was written before COVID-19 had become a pandemic, and very few people could have predicted its economic, political and social fallout from the pandemic. If the poll had been taken a few months – or even a few weeks – later, it's reasonable to suggest that some of the answers would have been significantly different.

While last year's poll participants weren't overly optimistic about the CRE market, they had no way of predicting that the overall volume of CRE acquisitions would be down a whopping 32% from 2019, according to Real Capital Analytics (RCA)10. While over $405 billion in total CRE acquisitions occurred in 2020, most of the activity occurred in 1Q and 4Q, with a drop of 64% in 2Q 2020, a larger decline than had occurred in the aftermath of the GFC.

The respondents accurately predicted the continued strength of multifamily and industrial and the weakness of retail and hotel, trends that were emerging prior to COVID-19, but they had no way of knowing that a pandemic would tremendously magnify the existing bifurcations in the markets. Of the four main property types, investor demand was primarily directed toward apartment and industrial assets for the year, according to RCA11 data. In fact, December 2020's industrial volume was the highest December number ever. Dbriefs participants' waning optimism for the office sector played out in 2020. With the surge in vacancies, it's not surprising that transaction volume in office, which has historically been a safe-haven property type in past downturns, was down almost as much as retail for the year.

Line and bar graph: Apartment volume and pricing, 2007 to 2020
Stacked bar and line graph: Industrial acquisitions, 2007 to 2020

Contrary to pre-pandemic predictions, overall CRE capital availability declined during the first half of 2020, according to RERC12 survey data. It did, however, begin to rebound during the second half of the year as investors loosened their purse strings. Nonetheless, capital availability ratings are well below pre-pandemic levels, declining from 7.4 in 4Q 2019 to 5.5 in 4Q 2020.

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