IRR Sees Bright Spots Across the Real Estate Landscape

A year ago, Integra Realty Resources CEO Anthony M. Graziano closed his letter kicking off the 28th edition of IRR’s Viewpoint review and forecast by writing, “I choose to be optimistic that the sun will remain shining in 2020. Nevertheless, I’ll be bringing an umbrella.” Of course, nobody could have anticipated what kind of heavy weather the year actually brought.

“Here we are, one year later,” Graziano writes in the 29th edition of Viewpoint. “The greatest peril the world has seen in more than 80 years has shattered U.S. small businesses, along with our hospitality and retail sectors. In less than nine months, the stock market has confounded the bears, while most local housing markets across the nation posted their best close on volume and price gains in years. The vulture real estate funds remain on the sidelines, waiting for deals that have yet to materialize.

“Despite the economic uncertainty and market volatility, bright spots remain across the real estate landscape, and we remain cautiously optimistic as we begin the new year,” he added.

Among the key themes sounded in the latest Viewpoint are the following:

• Those hoping a post-pandemic economy will swiftly return to conditions prevailing in late 2019 are going to be disappointed.
• Real GDP is still $670 billion off the pre-COVID peak. A return to the prior real GDP peak is projected in the first quarter of 2022 at the earliest, or second quarter 2023 at the latest.
• The jobs recovery to prior peak is September 2024, at best, and October 2026, at worst.
• Cap rates for real estate and commercial property mortgage rates have remained stable. With commercial property transactions down 50% year over year, risk-adjusted returns are high and will remain that way into 2021.
• Interest rates are anticipated to remain low through 2023, or even 2024.
• Monetary policy will keep the sluice gates of capital wide open, bringing an optimistic air to private sector capital markets both on the equity and the debt side.
• Coronavirus disruption is creating innovation opportunities across a swath of industries: technology, communications, pharmaceuticals, health services, and even retailing and financial services.

Added commercial real estate economist High F. Kelly, who once again partnered with IRR on the new report, “Following 2020, it is fairly easy to predict that 2021 is bound to be better. The new vaccines mean real hope for improved public health conditions supporting economic revival.

“However, the winter viral surge will leave economic scars,” he continued. “Washington gridlock has raised risks of a ‘W’ recession, constraining early 2021 growth. So, while readers will see there are many reasons for optimism, there are also many reasons for caution as hopeful eyes look towards a mid-year economic recovery.”

Pictured: Anthony M. Graziano.

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