Commercial brokerage house CBRE conducted a survey of CBRE investment and valuation professionals in the last two weeks of August.
One of the top items that I saw in that survey was the word risk. As we’ve talked about several time recently, risk has become top of mind for most investors this year.
There are a number of sentiments in the survey that are worth noting. We’ll start by talking about investment market conditions.
Survey respondents report that a disconnect between buyer and seller expectations has emerged, with more than 60% of buyers looking for discounts from pre-pandemic prices versus 9% of sellers willing to offer them.
One-third of survey respondents were underwriting with the same rental income assumptions as in Q1, with the remaining two-thirds adopting more conservative assumptions. Half of those with unchanged underwriting assumptions were in the industrial sector.
CBRE professionals indicate that investors are placing greater importance on certain investment criteria than before the pandemic, particularly tenant credit quality (cited by 85% of respondents), length of remaining lease term (64%) and building occupancy (64%).
Roughly two-thirds of survey respondents believe that investment activity will recover to pre-pandemic levels within one year. But that sentiment varies widely by asset class. Let’s dig into the details.
When asked how it will take for market conditions to return to pre-pandemic levels, the answer varied widely by asset class.
In the office asset class, 72% of respondents said it would take more than 12 months for offices in the central business districts. For offices in suburban settings, 48% said it would be more than one year, versus 52% who said it would take less than a year.
In the retail sector, 58% of respondents said it would take more than one year for market conditions to recover to pre-pandemic levels.
In multi-family 84% said it would take under a year and 45% said it would take less than 6 months.
Industrial seems to have hardly skipped a beat during the pandemic.
When asked about the factors influencing investment decisions, respondents said that three new factors loom large when looking at new investments.
1) Building occupancy
2) Length of time remaining on leases
3) Credit worthiness of the tenants
These factors seem much more important than in the past.
There is no question that the business outlook is considerably more negative, especially in office and retail.