“The recovery is a lot stronger than what we originally thought in the beginning of the year.”
Despite continuing threats from the Delta variant, global commercial real estate markets are continuing to rebound, with overall leasing and transactional volume on the upswing. And that’s leading CBRE researchers to upgrade their forecasts for the US and Asia Pacific regions in particular.
In a recent discussion with Spencer Levy, the firm’s Global Chief Client Officer, CBRE Global Head of Investor Thought Leadership & Research Henry Chin said the recovery is “a lot stronger than what we originally thought in the beginning of the year.”
“The Americans (and) the Europeans are starting having their holidays during the summer vacations, that definitely gives us this extra boost of confidence,” Chin said. “The market’s going to track back and of course, the delta variant is a big uncertainty for us right now.”
And perhaps nowhere is that uncertainty most pronounced than in the office asset class.
Julie Whelan, CBRE’s Global Head of Occupier Thought Leadership, said office continues to struggle as tenants face lukewarm occupancy in their spaces. That, Whelan says, has in turn led to an inability for tenants to make long-term real estate decisions. For the most part, leasing activity has consisted of short-term renewals and flex space leases.
Employers have flocked to flex space in recent months: last week, Jamie Hodari, CEO of shared office provider Industrious, told CBRE’s Levy that his company—which took a big investment from CBRE last fall—said the company hit three times their pre-COVID sales average in June.
“We are in the heart of a moment right now where there’s an extraordinary rush to use flex,” Hodari said.
Whelan said that while the rush to alternative arrangements has pushed back certain elements of the recovery, leasing activity is nonetheless increasing, signaling some positive momentum in the market.
“What we would be hoping is that at the second half of 2021, we would start to see a more enhanced office occupancy, which would lead to longer term real estate decisions being made in the form of larger leases for longer term,” Whelan told Levy. But as the delta variant has thrown many employers’ return-to-work plans out the window, long-term leasing decisions are being delayed even further.
“Tenants just cannot understand what they’re going to need in the long term, given the fact that they don’t have observable trends today,” she said. “But we do believe that transaction activity is picking up. We see it in the numbers, we see it in the sentiment, and we see it in tenants touring the market. And that’s all positive at the end of the day.”