UBS’s Real Estate Outlook Report

UBS’s Asset Management arm has published its latest Real Estate Outlook edition, outlining the impacts of the pandemic on global and U.S.-based real estate investment. As can be expected, the continued prevalence of COVID-19 infections in the U.S. and the uncertainty surrounding the upcoming November elections are given real estate investors pause in striking new deals right now. However, some clear trends have emerged in the commercial real estate market and UBS researchers advise investors to take a long-term view on how the various property sectors are likely to perform. Here are seven takeaways from the report.

  1. The impact of the COVID-19 crisis on private real estate has been most immediately felt in three investment sectors: hotel, retail and new development, where properties and sites have been closed or limited in operations and projects might have been put on hold. Conditions in the office, apartment and industrial sectors have deteriorated in the short term, as expected due to widespread shutdowns, but generally these properties remain open, with some flexibility in being able to adapt to current market conditions.
  2. Apartment supply pipelines are facing delays. But as a sector that remains essential even in the midst of a pandemic, apartment buildings have posted the highest average rent collectionsof any major property type.
  3. The industrial sector has benefited greatly from fulfilling e-commerce orders as consumers have shifted a lot of their buying, including grocery purchases, from bricks-and-mortar stores to online. Year-over-year rent growth in the sector reached 4.8 percent in the second quarter, slower than during recent quarters, but still showing strength in a downturn. Helping keep industrial fundamental in check going forward could be the fact that new space supply deliveries are expected to slow for the rest of 2020.
  4. Occupancy rates in the office sector have benefited from the prevalence of long, multi-year leases, even while many offices have remain closed and office users considering long-term work from home options.
  5. Office rent collections, however, declined compared to the first quarter figures. Investors will likely adjust expectations on office projects going forward.
  6. The retail sector has both winners and losers at the moment. Some non-essential shops have shuttered, while others are attempting to remain viable by tapping into resources like the Paycheck Protection Act. On the other hand, grocers, pharmacies and other essential services retailers could see record first and second quarter sales.
  7. Overall investment sales volume is stalling out in real time, making it more difficult for investors and appraisers to find comparable sales data and come to an agreement on price discovery. Investment sales volumes dropped off when the pandemic hit the U.S. in March 2020 and have not recovered momentum.

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