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Econometric Advisors' blog

EA's Top Takeaways for 2021

Jan 12, 2021, 09:18 AM by Neil Blake

It was a tumultuous 2020 and high levels of COVID-19 infections mean that it will be a difficult start to 2021, but economic prospects for the rest of the year are bright. This will provide a much more supportive environment for real estate, but challenges remain.

The Economy – We expect a slow start to the year despite the new fiscal support package. On a positive note, GDP is expected to get back to end-2019 levels by the end of the year. Broader Democratic control means that it will be easier to pass new fiscal support measures. Expect new infrastructure funding, but that will take a while to flow into growth. Expect further fiscal support measures and help for the vaccine programs in the shorter term.

Monetary Policy and Interest Rates – Inflation will pick up with the recovery, but the new policy framework means that there will be no change in the Fed Fund Rate this year. 10-year T. Bond yields will pick up from last year’s ultra-low levels but will not deviate much from historic lows.

Cities – Large, high-cost and dense cities have been especially affected by COVID-19 as social distancing measures have eroded affordability. Longer term, a new work-from-home culture may curtail the degree of activity within city centers, but the appeal of urban living and working, especially amongst younger adults, will reassert itself as the pandemic fades. The best urban growth outlook will be seen in mid-sized cities with a growing and technically inclined labor force, such as Raleigh and Austin.

Offices –The economic recovery and the rollout of the vaccine are underway. As tenants begin making decisions around when and how to return to the office, a number of trends are top of mind. Consider the following three:


  1. Work-from-home (WFH): the great experiment showed us we could do it. But do we want to? EA believes WFH will have a lasting impact on the office sector, but it shouldn’t be exaggerated.
  2. Flight to quality: another trend already underway as we entered the COVID-19 pandemic, occupier preference for high quality space seems stickier than ever, and developers have recognized this, delivering a higher proportion of Class A product than ever.
  3. Flexible lease terms: occupier strategy is still clouded in uncertainty. Flexible lease structures can be a win-win—giving tenants time to establish their office strategy but giving landlords some significant commitment today.

Industrial – was the big winner in 2020 as e-commerce took off as people stayed in and shops closed.  The pace of growth for e-commerce is likely to be significantly weaker in 2021 but will maintain a significantly larger share of retail activity even as the economy reopens. In addition, rebounding activity in other areas of the economy should sustain healthy demand for industrial space throughout the year.

Retail – Bankruptcies and store closures filled the headline news for retail in 2020 and it’s not going away in 2021. The e-commerce boom might have been industrial’s gain, but it was also retail’s loss. With the distribution of vaccines in 2021, we expect foot traffic to physical stores to rebound though not completely. Rent and availability rates are expected to deteriorate further as more retailers rethink their real estate strategy and right-sizing their physical stores. However, the role of physical stores has evolved and will be geared more toward fulfilling consumers’ needs for convenience and experience.

Apartments – Multifamily has been more resilient this cycle than in past recessions, largely due to continuing demand in mid-sized cities. Major metros had a difficult H2 2020, with many urban amenities shuttered and the increased ability to work long-distance leading to significant outmigration. Expect a peak in vacancy in Q1 and a bottoming out of rents by mid-year. Fundamentals remain strong and we should see a steady recovery throughout 2022.

Hotels – were the worst hit asset class in 2020, but the second half of 2021 promises a strong turnaround. Pent up consumer demand for leisure travel will boost national occupancy to higher than 85% of 2019 levels by Q4. Businesses, keen to participate in events that allow their staff member to get to know clients and each other face-to-face once again, will resume corporate and conference travel. This will raise rate at an accelerating pace in the coming years.

Investment Performance – relative asset performance will depend on the occupier market, but the low cost of capital provides a supportive background for investment.  10-year T. Bond yields might be higher than in 2020, but the uncertainty premium will be much lower and economic recovery sets in, which will lead to more transaction activities as the market stabilizes.

If you would like to talk to a representative of CBRE EA about their data and forecasting services, please contact:

Neil Blake, Ph.D., Global Head of Forecasting & Analytics

Matt Mowell, Sr. Economist, Macro

Matt Vance, Sr. Economist, Office

Ibrahiim Bayaan, Economist, Industrial

Christina Tong, Economist, Retail

Bram Gallagher, Ph.D., Sr. Economist, Hotels

Nathan Atkins, Sr. Economist, Apartments

Jing Ren, Ph.D., Sr. Economist, Investment and Capital Markets

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