AFIRE/RICS North America Commercial Property Monitor: Q3 2020

Headline rents and capital values expected to soften amid gloomy economic backdrop

The Q3 2020 AFIRE/RICS North America Commercial Property Monitor suggest the market remains under pressure, with the economic fallout arising from the pandemic continuing to take its toll. At both the global and regional level, key sentiment indicators remain firmly negative, even if the latest figures are marginally less downbeat than those returned last quarter. Notwithstanding this, structural changes sweeping the global economy are producing an increasingly divergent picture across different commercial real estate sectors. Offices and retail appear to be the hardest hit, while industrials and data centers display a much more resilient outlook.

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With social distancing restrictions again being ramped up in many parts of the world, national economies appear vulnerable to setbacks on their road to recovery.

Although subject to revision given the uncertain climate, the IMF’s latest projections now point to a -4.4% contraction in world GDP this year, with output across advanced economies anticipated to fall by -5.8%. Next year, world GDP on current estimates is expected to rebound by 5.2%, but advanced economies are not envisaged to fully recoup this year’s lost output (recovering by 3.9%). Indeed, the shortfall is anticipated to be most pronounced in Europe, but the US economy is also expected to end 2021 smaller than prior to onset of the pandemic.

This challenging macro picture continues to weigh heavily on sentiment across the commercial real estate sector. As displayed in the report, the headline RICS Global Commercial Property Sentiment Index* (which incorporates feedback on both the occupier and investment markets) registered a reading of -31 in Q3.

Although marginally less negative than -37 posted in Q2, this still represents one of the weakest readings seen since the global financial crisis.

At the regional level, Asia Pacific showed a slightly more noticeable easing in negativity compared to global average, with the latest reading moving to -28 from -38. The remaining regional groupings (the Middle East and Africa, the Americas and Europe) returned figures in the range of -32 to -34 during Q3, which are all only marginally above those recorded previously.

Responses for this report were collected from AFIRE, APREA, RICS, and the Society of Chartered Surveyors Ireland.

ABOUT THE REPORT

AFIRE has partnered with the Royal Institution of Chartered Surveyors (RICS), a professional body promoting and enforcing the highest international standards in the valuation, management and development of land, real estate, construction, and infrastructure, to collaborate on research for the organization’s quarterly North America Commercial Property Monitor—part of RICS’ Global Commercial Property Monitors, which serve as leading indicators of conditions in commercial property occupier and investor markets around the world. Click here to learn more.

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