Global CRE Sentiment Recovers, Slightly, in Q4

By Paul Bubny

The results of the Q4 2020 RICS Global Commercial Property Monitor (GCPM) suggests that sentiment in the real estate market remains generally downbeat, albeit a little less so than was the case a few months earlier. “Given the ongoing macro challenges in many parts of the world as the pandemic continues to rage, this is hardly surprising,” according to RICS, which also notes that the divergence in indicators among different property sectors “remains acute.”

RICS says the fourth-quarter 2020 GCPM results across North America remain largely downbeat overall, encumbered by a continued sharp decline in office and retail demand. “Nevertheless, flying in the face of the generally difficult economic backdrop, trends across the industrial sector appear increasingly buoyant according to the latest survey feedback,” RICS says.

Within the GCPM, the Commercial Property Sentiment Index (CPSI) turned a little less negative in Canada over the quarter, moving from -36 to -23. However, across the U.S., the Q4 figure was virtually unchanged compared with Q3 (-32 vs -29).

Vacancies, incentives and inventories of for-sale properties all were reported to have risen significantly during Q4. Notwithstanding this, the RICS survey found that indicators tracking occupier demand and investment inquiries at the all-property level did turn less negative across the U.S., posting respective net balances of -32% and -2% (up from -44% and -28% previously).

The 12-month outlook for rents remains negative at the headline level in both Canada and the United States. Across the latter, all-property rents are seen falling by 4.5% in the year to come, with respondents barely upgrading their projections relative to a -5% assessment returned in Q3. In Canada, though rents are still seen falling by close to 2%, this does represent a slightly less downbeat view compared with -3% posted last quarter.

For capital values, participants across the U.S. still foresee relatively steep declines in the year to come, averaging around 4%. In Canada, though, survey participants believe headline capital values will hold more or less steady (revised up from a -3% projection in Q3).

Simon Rubinsohn, RICS chief economist, commented, “As COVID-19 continues to ravage the global economy, disrupt demand and accelerate socio-economic and technological trends, it’s no wonder that confidence in commercial property is fragile at best. Structural changes are still working their way through the sector – with demand for logistics and industrial space picking up pace, while retail and office continue to face an intensely challenging backdrop.

“However, two consecutive quarters of strengthening sentiment, and improving investor demand, suggest that we could soon reach a turning point,” he added. “Nonetheless, the road to recovery and any return to growth will take some time – and depend heavily on the suppression of the virus, and the delicate health of the wider global economy.”

Rubinsohn told Connect Media that the industry sentiment level isn’t far afield of what you’d get from surveying the broader business community. He pointed out, though, ”It’s a very fragmented market. There’s an overarching view, but peel away those onion layers and there are quite specific trends going on.” That applies both within property sectors and within markets.

Nor is the muted sentiment among U.S. respondents out of line with the global picture. In terms of sentiment, “The U.S. is right in the middle of the ballpark.” Rubinsohn said. That applies to current conditions as well as in the forward-looking, 12-month expectations for pricing and rents. There are countries where sentiment is quite negative—Hong Kong and Malaysia in Asia, for example, and the United Arab Emirates in the Middle East—and there are a few “at the other end of the spectrum.”

One thing Rubinsohn has found surprising about the RICS survey is the “candid nature” of the responses. In general, you’d expect CRE professionals to have “an optimism bias,” and in conversations with industry members, he has found them to be generally optimistic. That makes the tone of the current responses all the more striking.

He observed, “It may have been due to the time period in which the survey was conducted”—mid-December to mid-January, during which the COVID-19 resurgence was worsening in many parts of the world and, in the U.S. particularly, there was political uncertainty. “But I am struck by the consistency of the results and by the fact that there was a slight edge of caution.”

For comments, questions or concerns, please contact Paul Bubny