Cushman’s chief economist on Russia, real estate and rates

Cushman & Wakefield’s chief economist has predicted a “strong performance” for the commercial real estate industry this year – provided the Covid-19 pandemic and global economy “follow the most probable script”. On an earnings call to discuss the agency’s fourth-quarter and full-year results, Kevin Thorpe described 2021 as “a strong rebound year for the commercial real estate sector”, highlighting the industry as “increasingly resilient to the pandemic”.  Most sectors have shifted “from recovery to growth”, Thorpe said, albeit with some variation by geography and other factors. He pointed to logistics, data centres, life sciences, self-storage and apartments as standouts. By comparison, he said, retail and offices “continue to lag behind in the recovery”, although he added “there are also many encouraging signs indicating that the worst is over”. “Last year featured new waves and variants,” Thorpe said. “As the year went on, it became apparent that the commercial real estate sector was becoming less disrupted by these waves, as evidenced by the increasingly strong performance throughout the year. Looking ahead, the economic outlook remains strong.” Thorpe pointed to forecasts from the International Monetary Fund that the global economy will grow by 5.9% this year, and by the mid-4%s in 2022. “As we know historically, GDP has been a solid predictor for the commercial real estate sector,” he added. “When the economy grows at a healthy rate, it typically means more jobs, more leasing, more capital markets deals, more buildings to manage – giving us conviction on a strong outlook for property in 2022.” Thorpe said the agency is monitoring interest rates movements from the Federal Reserve. “I would emphasise that even with a 10-year treasury yield drifting higher, interest rates still remain low and below pre-pandemic levels and are still half of their historical average, making spreads still attractive in the commercial real estate sector,” he said. In a question-and-answer session with equity analysts, Thorpe also touched on the Russian invasion of Ukraine and its impact on the economic outlook and knock-on effect on real estate. “There’s geopolitical risk that’s forming with Russia [and] Ukraine as that relates to oil,” he said. “I would say, just in my view, it’s really too soon to say precisely how that conflict will impact the property sector.” He continued: “The stock market is subject to these wild daily swings – real estate is not. Real estate is more grounded in local economic fundamentals and generally has a longer investment horizon, with valuation supported by long-term leases. We know that interest rates remain very low. And it’s actually possible that this conflict could drive interest rates even lower, making spreads even more attractive, [and] could actually drive demand for core real estate up.” To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews Image © Cushman & Wakefield