After a three- to six-month coronavirus-induced pause, investor interest in real estate is ramping up as a source of yield in a low-interest-rate world, which is expected to continue into 2021.
Industry insiders anticipate growing rents in niche sectors, including data centers, medical offices, cold storage and single-family homes for rent. Of the four main real estate sectors, industrial and multifamily are most prized, leaving hospitality and retail behind, industry experts say.
Overall, real estate executives project slightly higher returns for the asset class in 2021. According to the Pension Real Estate Association's fourth quarter Consensus Forecast Survey of U.S. commercial real estate market returns, respondents expect a NCREIF Property index total return of 2.8% in 2021 and 6.9% in 2022, compared with an estimated 0.1% in 2020. Respondents anticipate the NCREIF to produce a total return of 5.1% per year from 2020 through 2024.
"What we are hearing from people is that ... (they) are generally positive and optimistic" about 2021, said Peter T. Martenson, San Diego-based partner at Eaton Partners LLC. "(Real estate) fund managers are getting a COVID pass."
Investors understand that any disruption in real estate is from the COVID-19 impact because "they expect things to return to the mean in the short term," Mr. Martenson said.
"Investors are feeling good even though they have trepidation for lack of certainty in 2021," he said. "They took a three- to five-month hiatus in investing in 2020 and so have the firepower."
But there is a caveat, he said. "Everyone is walking forward knowing the world could change at any moment and they might have to revise" their investment plans, Mr. Martenson said.