Commercial real estate investors predict up to a 10% fall in property value as a result of the coronavirus pandemic, but prices are expected to recover by next year.
According to a survey of 325 directors and investors, 39% expect commercial real estate assets will fall between 5% to 10% in value in 2020, whilst nearly 31% expect a fall of 10% or more as a result of the pandemic.
However, 90% of the respondents expected asset prices to go back to pre-pandemic levels by 2021, according to the survey carried out by Duff & Phelps.
The financial consultancy firm said the respondents expected the worst long-term damage in commercial real estate to be among retail and hotels, accounting for 37% and 36% responses respectively.
Most investors expect retail property values to decrease between 10-40% over the next 12 months.
Data from the survey showed that 36% of respondents believed the industrial and logistics sector will emerge the strongest from the current crisis. Investors also saw prospects for residential (29%) and proptech (19%), which they also believed would gain strength after the crisis.
John Slade, chairman of the real estate advisory group at Duff & Phelps, said: “COVID-19 has had an unprecedented impact on the corporate real estate sector, with lockdowns effectively shutting down entire sectors for months.
“However, the damage has not been uniform, as some business sectors cannot be taken online as easily as others. Nonetheless, some sectors have proved remarkably resilient, particularly prime city-centre offices and logistics properties. The value of these assets seems to have been maintained so far.”
According to Duff & Phelps, investors have identified a global recession as the biggest risk to commercial real estate assets (64%), ranking even higher than the pandemic (25%).
“If governments decide to shut down world economies, you can expect to see enormous short-term change, Slade said.
“But the degree of pessimism among investors is starting to subside, and given the availability of investment capital, I am confident the commercial real estate sector will make a strong recovery.”
Duff & Phelps surveyed senior directors and investors within the commercial real estate industry from the EU (54%), US (25%), and UK (18%). Survey respondents worked for private property companies (38%), publicly listed property companies, including real estate investment trusts (38%) and 14% were investment managers.
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