At I.CON Virtual 2020 this week, Spencer Levy, Chairman of Americas Research and Senior Economic Advisor, CBRE, presented a high-level look at macroeconomic trends in the U.S. economy and how he sees the industrial asset class emerging from the COVID-19 crisis.
“The questions I keep hearing are, ‘When does this end, and what does the future look like?’” Levy said to attendees. “I’ve been all over the world speaking to colleagues to try to find the answer.”
“I’m a real estate professional, and the only thing that persuades me are comps – comparable transactions from other similar time periods,” Levy said. “And when we look at the time period of the last few months, and what’s happened in China and the reopening happening throughout Europe, the economic recovery is happening much faster than anticipated.”
Levy said CBRE’s economic forecast has a 40% downside risk in the fall, taking into account a potential spike in COVID-19 infections around that time.
Following that, “We will have a very strong 2021,” Levy said. “Though even if our base forecast is right, it still means two lost years, because the economy will be the same size going into 2022 as it was in 2020.”
Levy talked about how the federal government’s support has benefited the economy, and that he anticipates more fiscal stimulus measures to be announced soon which will continue to bolster businesses.
“Some people have their catcher’s mitts out waiting to catch the distressed deals when they come,” Levy said. “But if government support stays at the levels we’ve seen, you may never see large volumes of distressed deals.”
For those who wonder when the market will reach bottom, Levy said he believes it has already occurred in retail and industrial. He talked about CBRE’s collections, reporting that the company has seen collections at 86% in April and May for its industrial assets – well above expectations.
“The [Paycheck Protection Program], however imperfect, worked,” he said.
Post-COVID, Levy that industrial will not only bounce back as fast as any other asset class, CBRE’s forecast for industrial over the next 2-3 years is stronger today than it was in January 2020, before the pandemic.
“[The forecasts] are better because the secular shifts you have seen accelerated have all benefited industrial, from last mile to near-shoring.”
With the pandemic, it become clear the U.S. economy did not have enough resiliency, Levy said, specifically excess storage and inventory. “We need more storage ability, more inventory. All of that translates to more significant demand for industrial space.”
“Not to say the next year won’t be difficult for industrial,” he added. “It will be – from a rent growth perspective and vacancy perspective – but will bounce back quickly.”
“Despite the challenges of the economy, we are optimistic,” said Levy. “We are more bullish on industrial than we were before COVID, because all of the megatrends are pointing in its direction.”