The annual Allen Matkins View From the Top brings together the top real estate economists, owners, investors, developers, and brokers in Western Region commercial real estate. Now in its 14th year, View From the Top remains a key source for up-to-the-minute market information and predictions.
Yields Driving CRE Investments Over the Next Year. Michael Van Konynenburg, President of Eastdil Secured, kicked off this year’s event with an excellent summary of the unprecedented bullish economic climate. The U.S. economy is heating up at a fast rate, and due to a doubling of the Federal Reserve balance sheet over the last 18 months and an injection of stimulus capital into the economy equal to 25% of the annual GDP, there is a massive amount of capital in play. Banks and investors are having trouble finding places to invest this capital. At the same time, low interest rates are pushing investors to search for yield and are pushing down cap rates—the longer we have low rates the lower cap rates will go. This bullishness bodes well for commercial real estate, as this “need for yield” should drive investments over the next year.
A Strong Economic Recovery from COVID-19 Points to a Big Recovery for CRE Markets (At Different Rates). The U.S. and world economies are coming out of the COVID-19 pandemic with strength. As Owen D. Thomas, CEO of Boston Properties, points out, “strong economic growth coupled with low interest rates creates a great environment for real estate investment evaluation.” As a result, most CRE sectors are trading competitively above pre-pandemic levels, with office being the one exception (except for highly leased first-class office projects in urban areas) for the sole reason that most employees have not yet returned to the office, which should change in the next year. According to Gregg Walker, Senior Managing Director and Head of Business Development at DivcoWest, “many office tenants are still trying to figure out what their office footprint will look like. For the next 24 months, there will be a lot of tenants trying to figure out what that balance will look like for them.”
Demand for Office Space that Incorporates Collaborative Outdoor Areas Will Skyrocket. With businesses in a post-COVID-19 world eager to bring back employees to the office, there is a massive new demand for office layouts to emphasize outdoor space—decks, rooftops, terraces, and plazas will be incorporated into workspaces like never before. Kilroy Realty Corporation’s CEO John Kilroy sees workplace environments as moving towards a greater engagement with the outdoors: “with COVID and other things that will come up in the future, more and more meetings will take place outside, whether they’re small group collaborations or several hundred-person events.” Kilroy has invested heavily in incorporating collaborative outdoor areas into the company’s recent office developments and believes strongly that “if I …….