[User] Government Consumption and Investment Net Exports of Goods and Services Change in Private Inventories Residential Fixed Investment Nonresidential Fixed Investment Personal Consumption Expenditures GDP Contribution to Real GDP Annualized % Change Net Exports Are the Largest Contributor to Growth for the First Time of the Expansion Q1 2019 QEuro Area (Chn $2010 EUR) U.S. (Chn $2012 USD) China (Chn $2015 Yuan) Real GDP (SAAR % Change) First Quarter Growth Accelerates Across the U.S., China, and Europof 5 Meanwhile, China grew at 6.9 percent in the first quarter, significantly above its 2019 target of 6.0 to 6.5 percent. Despite a variety of stimuli, including tax cuts, increased government spending, and relaxed bank reserve requirements, downside risks to Chinese manufacturing have emerged and a gauge of Chinese factory activity fell sharply in April, suggesting the policies may not be enough to ensure sustained growth. Additionally, U.S.-China trade tensions escalated in early May when the U.S. unexpectedly hiked an existing 10 percent tariff on $200 billion of Chinese goods to 25 percent and threatened to impose the same tariff on an additional $325 billion in Chinese goods. Equity markets pulled back sharply in response not merely to the U.S.-China disagreement but also out of concern that it might portend a similar escalation in U.S.-Europe trade tensions. Consumer Spending Growth Poised to Pick Up Personal consumption expenditures (PCE) grew just 1.2 percent annualized in the first quarter, the weakest pace in a year. Monthly data, however, showed that real consumer spending ended the quarter on a strong note, posting the largest monthly gain in two years in March. Strong PCE increases amid flat personal income pushed the saving rate eight-tenths lower to 6.5 percent, well below the nearly three-year high of 7.7 percent seen in December. However, consumers were cautious with credit card usage in March: while growth in nonrevolving credit (largely auto and student loans) held steady, revolving credit (largely credit card debt) declined for the first time in three months. Meanwhile, the Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices for the three months ending in April showed that the net share of banks tightening lending standards for credit card loans rose to the highest level since the end of 2009. The March Job Openings and Labor Turnover Survey pointed to an extremely tight labor market, which should support continued strength in consumer spending. The job openings rate rose to 4.7 percent, just shy of January’s all-time high, while the hires rate remained at 3.8 percent. The job openings rate has exceeded the hires rate for more than two years, and the number of openings has exceeded the number of unemployed persons for 12 straight months. The quits rate, a gauge of workers’ confidence in the labor market, held steady at an expansion best of 2.3 percent for the tenth straight month. The April jobs report confirmed the strength in the labor market, with nonfarm payrolls increasing by jobs to continue its rebound from February’s anemic gain. The stronger-than-expected gain helped boost the average monthly job gain for this year to though this remains slightly below the average 2018 gain of . The U-6 rate, a broad measure of labor market slack, held steady for the third straight month at 7.3 percent, the lowest level in 18 years. Other details of the April jobs report, however, were less rosy. The average workweek fell while the annual change in average hourly earnings has moved sideways in recent months after climbing steadily over 2018. The household survey results were mixed: the drop in the unemployment rate to its lowest level since 1969 came only because a drop in household employment was outpaced by a decline in the civilian labor force, pushing the labor force participation rate down to a seven-month low. The first quarter Employment Cost Index, a measure of labor compensation that is free from the influence of employment shifts across occupations and industries, edged down one-tenth of a percent on an annual basis from the expansion high of 2.8 percent as '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Revolving Consumer Credit Outstanding (EOP, SA, MoM % Change) Consumers Take on Less Credit Card Debt '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 ECI: Compensation: Civilian Workers (NSA, Dec-05=100, Y-o-Y % Change) The Annual Rise in the Employment Cost Index Slows, Suggesting No Significant Wage Pressure '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 JOLTS Rate Job Openings Rate Remains Elevated Compared to Hires Rate, Suggestive of a Tight Labor Market Job Openings (Openings/(Employment+Openings)*100) Hires (Hires/Employment*of 5 growth of the wages and salaries component as well as the benefits component slowed, indicating no significant wage pressure despite the tight labor market. Consumers appear to remain upbeat. The University of Michigan Consumer Sentiment index declined modestly in April but has essentially moved sideways at elevated levels since the presidential election. When asked about financial prospects for the year ahead, 44 percent of surveyed consumers anticipated improvements compared with just 8 percent who expected worsening finances, marking the best net improvement share since 2004. The jump in March consumer spending suggests increased momentum heading into the second quarter.

[Assistant] Recognizing this strength combined with historically elevated consumer confidence levels and healthy labor market conditions, we expect real consumer spending growth to pick up noticeably this quarter. Business Fixed Investment and Productivity Growth While trade and inventories exceeded our expectations, nonresidential fixed investment disappointed. Nonresidential fixed investment grew at a modest 2.7 percent annualized in the first quarter, driven almost entirely by investment in intellectual property products. Structures spending fell for the third straight quarter and equipment spending was essentially flat, edging up only two-tenths, the slowest pace in more than two years. While incoming data were mixed, we believe business investment growth will accelerate this quarter due to improved financial conditions and corporations’ desire to increase productivity in response to tight labor market conditions. Productivity growth has helped to keep per unit labor costs contained. Productivity jumped 3.6 percent annualized over the first quarter, the biggest gain since the third quarter of 2014, and registered more than 2.0 percent annual growth for the first time since 2010. The rise in productivity during the first quarter applied downward pressure on the growth in unit labor costs, pushing down its annual growth to the slowest pace since the end of 2013. We remain cognizant of several downside risks to nonresidential investment. The most prominent is the continuation of U.S.- China trade tensions, which may lead businesses to defer capital investments. Elevated levels of riskier corporate debt are also a concern as they make corporations more vulnerable to market shocks. The ratio of outstanding debt to GDP among nonfinancial firms is now near its all-time high. Not only is the nonfinancial corporate sector highly leveraged by historical standards, but credit quality in this space is also riskier than during past cycles. About half of outstanding bonds in 2018 were rated BBB, the lowest investment grade tier, up from one-third in 2000. As a result, a historically large portion of corporate borrowers may be susceptible to interest rate or liquidity shocks due to rising risk premiums or downgrades, potentially harming real economic activity. The Fed Struggles to Hit Its 2.0 Percent Inflation Target Inflation pressures remain muted, thanks in part to productivity gains balancing out wage growth. The annual gain in the PCE deflator, the Fed’s preferred measure of inflation, accelerated in March for the first time in eight months, though it remains one-half percentage point below the Fed’s 2.0 percent target, and well below the six-year high reached last July. First quarter headline PCE averaged 1.4 percent, the slowest pace since the third quarter of 2016. The statement following the May Federal Open Market Committee (FOMC) meeting acknowledged that both headline and core inflation “have declined and are running below 2 percent.” In the post-meeting press conference, Fed Chair Powell attributed the recent slowdown in inflation to “transitory factors,” such as portfolio management '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Q1 '19 Personal Consumption Expenditures (PCE) Chain Price Index (YoY %Change) Since the Recession, the Fed Has Struggled to Hit the 2.0 Percent Target Rate PCE Index Core PCE Index Fed Target '11 '12 '13 '14 '15 '16 '17 '18 '19 SA, Year-over-Year % Change Annual Growth in Productivity Accelerates While Unit Labor Costs Are Essentially Flat Nonfarm Productivity Unit Labor Costs of 5 service fees and apparel prices, but inflation below 2.0 percent has been more of a norm than an exception in the current expansion. Since the expansion began, headline PCE averaged above or at 2 percent twice, while core PCE has always averaged below the 2.0 percent target. Sustained below-target inflation will likely make it difficult for the Fed to raise the federal funds rate any further this year. Additionally, while we had been hopeful for a U.S.-China trade deal to boost growth in the second half of the year, that hope appears less likely, suggesting that the Fed will not see the substantial pickup in growth needed to justify a rate hike. Thus, we changed our call from a rate hike in December to no more hikes expected within our forecast horizon. This is consistent with statements from the Fed, such as Powell reiterating that the FOMC is comfortable with its patient stance and does not “see a strong case for moving in either direction.” Housing Drags, but We Expect a Rebound Residential fixed investment fell during the first quarter for the fifth straight quarter, driven by the decline in spending on new single- family structures. While single-family starts increased during the first quarter, the spending on the construction of these structures fell as the average price declined. Improvement spending rose during the quarter and exceeded investment in single-family structures for the first time since 2013. Brokers’ commissions, a part of residential investment, rose in the first quarter, thanks to a jump in new home sales and the first rise in existing home sales in five quarters. New single-family sales rose almost 15 percent over the quarter and were up slightly on an annual basis. The strong pace of new home sales was supported by drawing down inventories of already-started homes that had built up as sales slowed in 2018 in the face of higher mortgage rates. However, after peaking last November at an average of 4.87 percent, the 30-year, fixed mortgage rate has pulled back, falling about 70 basis points to 4.14 percent in April. The full effect of declining mortgage rates is likely still working its way through the market, adding further support for buyers. Builders likely still have a few months to go before inventories are back to their pre- slowdown trend, which should support new home sales in the second quarter, even if starts remain lackluster. Another positive development for affordability and good news for entry-level homes is that builders are increasingly focused on more modest-sized homes. After peaking at more than 2,500 square feet in the first quarter of 2015, the median size of single- family starts trended down to about 2,300 square feet at the end of 2018. As the share of low- and moderate-priced new homes sold in the first quarter increased, the median price for new home sales fell 7.1 percent. For existing homes, annual home price gains continued to moderate, with the CoreLogic National House Price Index rising 3.7 percent in March, the slowest pace since May 2012. Overall, leading indicators suggest that the spring home-buying season will be solid, as we expected. Pending sales, a leading indicator of existing sales, jumped 3.8 percent in March, suggesting continued strength into April. Purchase mortgage applications have also been on the rise, increasing strongly in March and April. Thus, we revised upward our home sales forecast for the second quarter to show a solid rebound from the first quarter. When combined with our more optimistic view of new home sales for the year, total sales for 2019 were also revised upward seven-tenths from our prior forecast to a modest gain of 1.0 percent from 2018. of 5 This mixed housing sentiment, the continued tightness in housing inventories, and elevated home prices relative to incomes will likely weaken sales momentum in the latter half of this year. Thus, after a solid rebound in the first half, total home sales are expected to moderate and level out by the end of the year, especially as economic growth slows heading into 2020. The Housing Vacancy and Homeownership Survey showed a three-tenths decline in the homeownership rate in the first quarter to a seasonally-adjusted rate of 64.3 percent, the first quarterly decline since 2016. The annual pace of total household formation growth remained steady at 1.3 percent, bolstered by renter households that grew at the fastest pace since the end of 2016. Vacancy rates for multifamily rental units in the first quarter were unchanged from the year prior, indicating that supply growth matched demand growth. To be consistent with incoming applications data, we revised upward both our purchase and refinance mortgage originations forecasts for 2019, pushing expected total originations volume from $1.62 trillion to $1.66 trillion. We continue to expect purchase originations to rise given modest increases in home sales and continued, but slowing, home price growth. With mortgage rates beginning to stabilize at much lower levels than in 2018, we expect less of a decline in refinance volumes and have revised our forecast for 2019 refinance mortgage originations from a 2.2 percent annual decline to a 1.2 percent decline. Economic & Strategic Research (ESR) Group May For a snapshot of macroeconomic and housing data between the monthly forecasts, please read ESR’s Economic and Housing Weekly Notes.


[User] The biggest driver of higher construction costs came down to the cost of labor. The survey found that labor costs more in New York, San Francisco, and Chicago due to the presence and influence of construction unions. According to RS Means survey respondents, it is less expensive to build a multifamily property in Atlanta, Seattle, and Dallas. Source: RS Means Compliance Costs Differ as Well Interestingly, the survey results suggested that permitting, zoning, and other local regulations typically do not add much to the total cost of a project, at least in the majority of the cities surveyed. For multifamily development projects located in Seattle, New York, Dallas, Chicago, and Atlanta, total compliance costs were between 2.0 percent and 4.0 percent of total project costs. By comparison, San Francisco was the outlier, with respondents stating that compliance costs accounted for more than 10 percent of the total project costs for developments in that city. Even though regulatory compliance costs may not account for a large portion of the total project costs, they are still significant as all regulatory requirements must be met before any actual site work can begin.

[Assistant] Real Estate Development Costs Not Significant For the purposes of this survey, RS Means did not include land or land financing costs in the categorization of soft costs. Land costs vary greatly by city, submarket, neighborhood, and site location, and are not tied to the actual cost of constructing the building. Nevertheless, the question was included separately in the survey. Across all six cities, respondents stated that, on average, real estate development fees only accounted for approximately 4.0 percent of total multifamily development project costs. New York had the largest real estate development percentage of project cost at 5.0 percent, while both Chicago and Dallas had the lowest percentage of project costs at just 3.0 percent. Included in the criteria for defining real estate development fees in the survey were financing costs, interest, tax credits, and any loan fees. Building Codes Result in a Big Impact on Project Timelines The survey also looked at industry factors that could potentially impact project costs and completion dates. One of the industry factors was the impact of building codes on cost. The developers surveyed in the six cities stated that, on average, stricter building codes increased total multifamily project costs by about 5.8 percent, but it varied by city. For example, developers in Atlanta reported that stricter building codes only increased their total project costs by about 3.0 percent, which was the lowest impact percentage in the survey. By contrast, San Francisco developers reported that stricter building codes increased their project costs by approximately 8.0 percent. The average of 5.8 percent of total project costs for stricter building codes increased project completion time by two months on average. Even though Atlanta had the lowest impact from stricter building codes, the city had the highest impact in regard to timelines, at approximately three months. San Francisco trailed right behind Atlanta in regard to the impact of stricter building codes. Overall the survey revealed that there was not much variance from the impact of stricter building codes on project timelines in the six cities.


[User] As seen in the chart below, several of the nation’s largest metros, especially in their more urban centers, have seen a decline in rent growth over the past year, according to data from Advisory Services. While these include some of the more expensive coastal metros, including San Francisco, San Jose, Boston, Washington, DC, New York, and Los Angeles, there are a few others that might be a bit of a surprise, such as Dallas, Salt Lake City, Minneapolis, Orlando, and Nashville. Source: Advisory Services Decline in Average Rent by Submarket Type: Q4 2019 – Q3 2020 – Select Metros San Francisco - CA: Urb. Not Just Leisure and Hospitality Metros During the first few months of the economic shutdown stemming from the COVID-19 pandemic, there was a concern regarding those metros with looming new supply, and many of the metros listed above have seen an influx of deliveries over the past several months. The other concern regarded those metros with a reliance on leisure and hospitality as primary economic drivers. And while that segment of the labor force is still recovering from job losses that occurred earlier this year, its corresponding metros are not overwhelmingly represented in the list of metros with the biggest rent declines. Instead, it appears that due to the option of telework, many of the high-tech metros, such as San Francisco, San Jose, Austin, and Salt Lake City, have been bearing the brunt of falling rents over the past four quarters: San Francisco’s urban locations are down by 10 percent; San Jose’s urban locations are down 7.2 percent; and even Salt Lake City’s urban locations are down 1.6 percent, all according to recent data from Portfolio Services. That said, there are some metros in the chart above that also rely on tourism to drive their local economies. For example, according to Moody’s Analytics, leisure and hospitality is the fourth largest employment sector in both Los Angeles and New York City, accounting for nearly 12 and 10 percent of employment, respectively. It is the third largest in Austin and Nashville, at nearly 12 percent each, and in San Francisco it’s an even bigger driver as the second largest sector, representing more than 12 percent of all jobs. 2 Multifamily Economic and Market Commentary Increased Demand in Some Urban and Suburban Submarkets As seen in the chart below, while there are several suburban locations that have seen an increase in rent growth, they are joined by their corresponding urban submarkets. The Inland Empire (i.e., the Riverside/San Bernandino metro area) is one example for which both the urban and suburban submarkets have been experiencing above average rent growth over the past year, at 5.3 percent and 5.8 percent, respectively. Despite its reliance on the leisure and hospitality sector, Las Vegas has also seen unexpected demand, with average rent growth of 5.0 percent in its suburban locations and even 3.4 percent rent growth in its urban locations, according to data from . Tucson and Sacramento have similarly seen increased demand for multifamily rentals in both their urban and suburban locations. Increase in Average Rent by Submarket Type – 4Q2019 – 3Q2020 – Select Metros Source: Advisory Services Non-Coastal Suburban Metros Seeing Rent Growth… The suburban locations of some Midwest and non-coastal metros are also experiencing increasing rent growth since the fourth quarter of 2019. These include Columbus, Indianapolis, Detroit, Memphis, and St. Louis. What these metros have in common is that their economies are in large part driven by logistics and/or manufacturing. These two employment sectors, while having endured job losses over the past several months, have fared better than other sectors and are now nearly back to pre-pandemic employment levels. Both sectors are down just 5.0 percent nationally between January and October 2020.

[Assistant] That is an improvement compared to other harder-hit job sectors, such as education, which is down 20 percent nationally; mining, which is down 8 percent; and, of course, leisure and hospitality, which is down 20 percent nationally over the same time period. 3 Multifamily Economic and Market Commentary The Impact of New Supply… The run-up in new supply expected to deliver in 2020 has been years in the making. We expect at least new units to complete this year with more than units underway, according to data from Dodge Data & Analytics. We believe that the elevated amount of new supply entering certain metros and submarkets this year has further stressed rent growth and resulted in rising concessions.


[User] As seen in the charts below, there are several metros that have concession rates well above the national average – and it’s likely no surprise that many of them are the same higher-cost metros that have experienced some of the biggest rent declines. The New York City metro has one of the highest concession rates in the country, currently at an estimated 14.8 percent, according to RealPage, Inc., but San Francisco, San Jose, and Boston are not far behind at 13.7 percent, 12.2 percent, and 11.2 percent, respectively.

[Assistant] Austin Boston Dallas Los Angeles New York Oakland San Francisco San Jose Seattle Atlanta Charlotte Columbus, OH Indianapolis Las Vegas Phoenix Riverside Sacramento Tampa A Continued Differentiation Expected Based on current trends, we believe that the demand for suburban relative to urban locations will continue into early 2021. The continued reliance on teleworking in the face of the ongoing pandemic suggests that some tenants that are working and able to pay rent – and that don’t have to commute to their jobs each day – will seek out cheaper options in some suburban locations, thanks to rising concessions and lower rents. How long the trend will last is a bigger question. If additional outbreaks continue or worsen and local economies endure rounds of additional shutdowns, we believe multifamily fundamentals, especially rent growth and concessions, could remain stressed well into 2021.


[User] 1 Over the past decade, the U.S. multifamily sector has benefited from solid demand, increasing rent growth, and low vacancies, thanks to favorable demographic trends, ongoing job growth, and continued renter household formations.

[Assistant] The same trends are expected to continue into the first year of the current decade. The biggest driver of multifamily demand has come primarily from the nation’s more than 80 million Millennials (those born between 1982 and 2000). They are the largest age cohort, outnumbering Generation Z (those born after 2000) and even Baby Boomers, according to the Census Bureau. Millennials, combined with Gen Z, the oldest of whom are starting to reach young adulthood, are expected to continue driving demand for housing, especially multifamily rental housing. Looking to the coming year, we expect the national multifamily sector to stay the course, as fundamentals are expected to remain essentially the same. We expect the vacancy rate to increase slightly and rent growth to remain positive in 2020, similar to last year’s pace.


[User] Net Absorption Expected to Remain Positive Demand for multifamily rental units remained positive throughout 2019. Net absorption is estimated to have totaled about units last year, according to data from , which is down compared to 2018’s estimated units absorbed.

[Assistant] Net absorption is expected to remain positive this year, although likely slowing to about units, according to . Net absorption is expected to remain elevated earlier in the year and then slow down later in the second half, as seen in the chart above. 2 Rent Growth Expected to Remain Stable Rent growth was positive in 2019 and is estimated to have ended the year at about 2.5 percent – once again outpacing the rate of inflation, which was at 2.1 percent as of the end of November 2019. There has been above average rent growth since 2011, but only since 2017 has rent growth stayed below 3.0 percent. Our expectation for 2020 is that rent growth will once again be positive, though perhaps slightly lower than 2019, as we project it to be in the range of 2.0 percent to 2.5 percent.


[User] National multifamily concessions for all property classes (averaged across all units, including those not offering concessions) remain at low levels. Only about 15 percent of all multifamily units are offering concessions, according to data from RealPage, Inc. Class A concession levels remain higher than class B and C units, indicating that property owners are likely offering more generous concessions up front for newer class A units to lock in higher rent levels upon lease renewal. For those class A units offering concessions, the average concession rate as of November 2019 was 7.1 percent, which is slightly less than a month of free rent. It was approximately three weeks of free rent for those properties offering concessions on class B and C units, at 5.6 percent and 5.5 percent, respectively, as of November 2019.

[Assistant] Multifamily Economic and Market Commentary Not Much Change Expected in Vacancy The national multifamily vacancy rate is expected to rise slightly in 2020, primarily due to the amount of new supply expected to complete and come online this year. Since much of this new supply is concentrated in a limited number of submarkets (only about 10 metros), it is possible that supply could outpace demand in some places this year. As a result, the national vacancy rate is expected to inch upward later in the year, as illustrated in the chart on the previous page. Despite an anticipated increase in the national vacancy rate, it is expected to remain low, due to demand stemming from anticipated positive job growth and favorable demographic projections. multifamily vacancy rate will remain in the 5.5 percent to 5.75 percent range during the early part of 2020 and could end the year near 6.0 percent. This would bring the national vacancy rate back to its recent historical average of 6.0 percent. Multifamily Economic and Market Commentary National class C rent growth in 2019 was estimated at 2.5 percent, according to RealPage, slightly lower than 2.9 percent for class A and 3.0 percent for class B. It appears that although less expensive units remain in demand, there isn’t much room to push rents higher, as evidenced by class C’s lower concession rates and 3.9 percent vacancy rate. As more new units deliver over the coming months, we expect the national concession rate to increase, albeit slightly. Class A concession rates may rise more dramatically for those metros with elevated levels of new deliveries in 2020. However, we believe that number of completions to be unlikely, based on the ongoing scarcity of construction workers. According to the Associated General Contractors of America’s 2019 Workplace Results survey, more than 80 percent of firms surveyed stated that it was difficult filling all positions, both hourly and salaried, but with hourly craft workers being the most difficult to replace. We do not expect that trend to improve in 2020. According to the Dodge Data & Analytics Supply Track, which distinguishes between multifamily properties consisting of either apartment or condominium units, about apartment units were completed in 2017, making it the most recent peak year for new deliveries. About units are estimated to have completed in 2019. The focus remains on rental: Condo completions recently peaked in 2018, with nearly 70,000 units, compared to only about 55,000 units in 2019. Dodge expects fewer than 50,000 condo units to be completed this year. Multifamily Economic and Market Commentary Continued Multifamily Demand Expected At a national level, we believe there is the potential for a slight supply/demand imbalance this year, based on the amount of new multifamily units expected to complete. Even though not all of the projected units are expected to actually deliver, the amount of expected job growth might not produce enough demand for all these new class A units. Based on that amount of job growth, national multifamily rental demand could be between and units this year. As seen in the chart to the right, much of that new supply is expected to deliver earlier in the year, when job growth is expected to be more robust than later in the year.


[User] Nevertheless, much of the new supply consists of more expensive, class A units and is primarily concentrated in about 10 to 12 metros, as seen in the chart below, with much of it concentrated in only a few submarkets.

[Assistant] The estimated amount of job growth, and its anticipated demand, differs widely from metro to metro, meaning that some metros are expected to experience more demand than others over the next 12 to 18 months.


[User] Multifamily Economic and Market Commentary Supply and Demand Vary by Metro Although the nation is expected to see positive job growth this year, it is not expected to be consistent everywhere, as illustrated in the two charts on the next page. These metros also happen to have a large amount of new multifamily rental supply on the horizon, as seen in the chart on the previous page.

[Assistant] The New York metro is expecting the largest amount of new supply, with more than 59,000 units underway, of which nearly 40,000 units are expected to deliver this year alone. Based on Moody’s Analytics’ anticipated job growth rate of just 0.4 percent, conservatively the metro could produce demand for fewer than 10,000 rental units. Chicago has more than 10,000 multifamily units expected to come on line this year, yet job growth of 0.5 percent could conservatively produce demand for fewer than 5,000 rental units. Although Philadelphia doesn’t have as much new supply underway as other metros, its projected below average job growth of just 0.4 percent could produce demand for fewer than 1,000 rental units, despite more than 8,000 units expected in 2020 alone. Other Metros More in Balance… Job growth in other metros is expected to fare better. Some Texas metros, such as Austin, Dallas, and Houston, are expected to surpass the national employment growth average. All three are expected to see job growth of 2.0 percent or higher, due to a continued expansion in the professional services, technology, healthcare, and transportation sectors. And while Austin and Dallas have elevated levels of new multifamily supply, the expectation of robust job growth should allow the multifamily sector to stay in balance over the course of the next 18 months.


[User] Austin’s new supply is anticipated at 14,000 units between now and 2021, but potential new demand is not expected to be that far behind at nearly 13,000 units. Dallas’s new supply appears elevated at more than 18,000 multifamily units delivering this year, but with 2.4 percent job growth projected this year, demand could easily be as high as 15,000 rental units. More importantly, by 2021, Dallas could actually be undersupplied, if job growth projections remain on track. Multifamily Economic and Market Commentary … And Some Need More Supply Once again, Las Vegas is likely to be undersupplied.

[Assistant] With Moody’s expecting job growth of 1.5 percent, there could be demand for more than 4,000 rental units, yet only about 2,500 multifamily units are expected to deliver in 2020. Even Riverside, with a renter household population of just 37 percent, is another metro that is likely to be undersupplied. With potential rental demand of between 6,000 and 7,000 units in 2020 (thanks to an expected job growth rate of nearly 1.9 percent), there are just 1,200 multifamily units expected to complete this year. Multifamily cap rates have remained in the mid- to low-5.0 percent range over the past two years due to the ongoing influx of capital flows and investor demand for properties. As a result of this anticipated investor interest, along with favorable fundamentals, investment in existing multifamily properties is expected to remain similar to 2019 levels. Although multifamily cap rates have remained at low levels – currently at about 5.4 percent, according to Real Capital Analytics – if the 10-Year Treasury Note yield declines any further, then cap rates would likely compress as well. But with our current economic forecast expecting the 10-Year to remain flat over the next 12 months, the expectation is that national multifamily cap rates are likely to remain low in 2020, staying well below 6.0 percent.


[User] For example, according to a recent report from CBRE, the New York City metro area experienced a 9.2 percent year-over-year decline in multifamily investment during the first eight months of 2019, which some partly attribute to its expansion of rent stabilization.

[Assistant] Based on anticipated investor demand, available liquidity, low interest rates, and construction projects whose loans should convert to permanent financing throughout the year, we expect 2020 multifamily mortgage origination volume levels to be higher than 2019. The Mortgage Bankers’ Association is anticipating multifamily originations volume will have reached $364 billion in 2019. It is even more optimistic with a forecast of $395 billion for 2020, which, as of this writing, does not appear unreasonable. For commercial real estate investors, as long as job growth holds up, multifamily is expected to remain a favored asset class in 2020, leaving open the possibility for further cap rate compression, increased sales, and, in turn, higher origination levels.


[User] Student Housing Deliveries – through Fall 2020 The Outbreak’s Impact on Enrollments College enrollments have been decreasing for seven years and early 2020 returns indicate that they are still in decline. According to the National Student Clearinghouse Research Center, Spring 2020 enrollments were down approximately 0.5 percent pre-COVID-19. Although this was a +1.2 percent increase, year-over-year, it is a bit misleading. Since the emergence of COVID-19 in the US, colleges and universities have had to face some harsh realities regarding enrollments for the upcoming Fall 2020-Spring 2021 school year. The biggest and most immediate impact is the decline in international student enrollments. According to the Institute of International Education, during the school year international student enrollment in U.S. institutions of higher learning was approximately students. In the school year, that number decreased to students. As a result of the global impact of COVID-19 and many of the travel restrictions that have emerged as a result of outbreak, many international students who left U.S. colleges and universities in March 2020 may not be able to return. Furthermore, international students who hoped to begin their college career in the U.S. may have to look elsewhere, as they are also impacted by travel restrictions. To try to mitigate the loss of international students, many colleges and universities altered their enrollment requirements for the upcoming school year. Some schools have eliminated standardized testing (ACT/SAT) requirements, and some schools are granting enrollment to a wider range of candidates that might have previously been waitlisted.

[Assistant] Unlike on- campus housing, which is suffering from full university closures resulting in a mass exodus of students, off-campus student housing properties are still open and operating. Since off-campus student housing properties are not technically affiliated with the universities they serve, the residents who occupy these properties did not have to evacuate once nearby schools announced their pivot to distance learning. The performance of fundamentals at the off-campus student housing properties are on par with pre-outbreak levels. Although occupancy levels have decreased compared to pre-outbreak levels, off-campus student housing properties are still occupied by residents as they continue to pay rent. Commercial real-estate services firm Berkadia has been conducting monthly surveys regarding the fundamentals of the off-campus student housing sector. In April 2020 approximately 70.5 percent of the beds surveyed were occupied; in May 2020, occupancy levels were at 71.2 percent of the beds surveyed. A New Reality for Student Housing Much like the rest of the multifamily sector, the student housing sector is learning to adapt to the COVID-19 outbreak on the fly. Due to the large social aspect of the college experience, we believe it’s unlikely that colleges and universities will only offer distance learning during the outbreak, as well as in any future outbreaks. As a result of the current outbreak, many schools may have to expedite changes that would otherwise still be on the back burner. The on-campus student housing sector, in particular, has a number of obstacles to overcome. The current model of packing students into small spaces with shared amenities and facilities is not beneficial during this outbreak and will likely not be in future outbreaks. However, the shortcomings of the on-campus student housing sector highlight the best qualities of the off-campus student housing sector. The off-campus student housing sector offers residents a social experience in which they can also practice social distancing in, since amenities are less shared than on-campus dormitories. We believe off-campus properties have maintained some normalcy, evidenced by the better-than-expected performance of their fundamentals, which have remained in-line with 2019 levels. As more colleges and universities update their learning plans for the upcoming school year, off-campus properties could become even more attractive to prospective residents.


[User] According to NIC data, total seniors housing absorption achieved a record level for the year, with approximately 15,600 units absorbed, a 9.3 percent increase from 2018. The underlying segments experienced similar trends: Majority IL absorption was 18 percent higher than 2018 at approximately 6,000 units, while Majority AL was up by just 4 percent, to approximately 9,700 units. Units Under Construction by Property Type – Q4 2019 Majority IL Majority AL Seniors Housing Transaction Activity Total 2019 seniors housing sales volume was up 14 percent from 2018 to $10.6 billion, according to data from Real Capital Analytics. The 2019 sales involved 551 properties, down from 737 properties the prior year. Cap rates increased to 7.1 percent for fourth quarter 2019, up from 5.6 percent in third quarter 2019 and 6.6 percent a year ago. The mix of properties sold in any given quarter can significantly influence national cap rate averages, so it is likely too early to determine if this is the beginning of a trend or normal volatility. Buyer composition for seniors housing properties shifted toward private entities in 2019. Private entities saw the largest change in share, accounting for 49 percent in 2019, up from 42 percent in 2018. Institutional entities accounted for 26 percent of 2019 buyer volume, up from 20 percent for 2018. Public buyers saw a diminished share, accounting for 20 percent of transactions in 2019, compared to 32 percent in 2018. 3 Multifamily Economic and Market Commentary Multifamily Economic and Market Commentary Primary-Secondary Market Performance According to NIC data, occupancy levels in secondary markets (32nd to 100th in size) ended the year unchanged compared with year-end 2018 at 87.8 percent. Occupancy levels in the secondary markets dipped during the middle of the year but recovered by year end. Rent growth in the secondary markets at year-end 2019 eased from the prior year, decreasing to 2.6 percent, down from 3.1 percent at the end of 2018. Occupancy - Primary vs. Secondary – Q4 2019 Primary Markets Secondary Markets Source: NIC MAP® Data Service 0.0% 1.0% 2.0% 3.0% 4.0% Rent Growth - Primary vs. Secondary – Q4 2019 Primary Markets Secondary Markets Metro Level AL Performance According to data from Reis, Inc., majority AL performance was mixed among the nation’s 50 highest inventory AL metros. Among the better-positioned metros, such as suburban Maryland, Minneapolis, and San Diego, there was solid rent growth, as well as marked growth improvement. But other metros, such as northern New Jersey, Buffalo, and Allentown, saw a significant decline in rent growth rates, with Allentown reporting an outright contraction in rent levels. Detroit reported both a significant decline in rent growth and a rising vacancy rate. From a vacancy perspective, central New Jersey, Buffalo, and Ft. Lauderdale have been experiencing a modest tightening for several years. Oakland and San Francisco, while being among the five tightest metros, have seen a slow but steady increase in vacancy over the past few years. A similar increase in vacancy has been in occurring in Phoenix, Greenville, Detroit, Dallas, and Austin, though the increases in many of the Texas metros are largely attributable to surging supply there. Select Metro AL Rent Growth – Source: Reis, Inc. – select metros include 50 highest AL inventory metros Select Metro AL Vacancy –

[Assistant] 4 Multifamily Economic and Market Commentary Multifamily Economic and Market Commentary Outlook Seniors housing market conditions were generally steady over the course of 2019, with the continuing trend of solid absorption amid generous supply. Rent growth eased during the first half of the year, but overall it remained stable considering the ongoing supply surge. Construction activity continued to moderate compared to the prior years, though we believe that trend could be short-lived. We expect overall occupancy levels to remain stable over the next year. Steady absorption levels should continue, which we expect should allow for moderate ongoing rent growth. As long as there is a generally healthy economy coupled with a stable single-family housing market, we expect the seniors housing sector to remain fairly steady over the near term. Since many seniors typically sell their home to afford the transition into seniors housing, single-family prices can, and do, have an impact on demand. Indeed, we expect existing single-family housing prices to increase 4.8 percent in 2020 before easing to approximately 2.8 percent in 2021.


[User] New Manufactured Homes Have Additional Costs Manufactured homes do have additional costs compared to a site-built home. For instance, new manufactured homes cost about $5,000 per section to ship, in addition to costs for installation and utility hookup. According to Next Step Network, a non-profit specializing in manufactured homes, the all-in cost to deliver, set, and finish a manufactured home can range from $21,000 for a single-section home to $34,000 for a double-section home. However, even when including these costs, a new site-built home is still more than 85% more expensive than a comparable single-section manufactured home and 36% more expensive than a double-section home. New Manufactured Homes* New Site-Built Homes** All Average (Avg.) Sales Price $ 78,500 $ Average Square Feet (sf) Avg. Cost per sf $ 54.59 $ 114.43 Single - Section Avg. Sales Price $ Avg. sf Avg. Cost per sf $ Double - Section Avg. Sales Price $ Avg. sf Avg. Cost per sf $ Select Pricing Statistics Manufactured and Site-Built Homes Average Cost to Deliver, Set and Finish a Home Average Cost Single-Section $21,000 Double-Section $34,000 A manufactured home can also be built very quickly. According to one manufactured home producer, it takes about six production days to complete a typical home. While delivery and installation require additional time, a homeowner is generally living in a manufactured home within 90 days. By contrast, a site-built home can take up to six months to construct. These factors can make manufactured homes an attractive alternative for some homebuyers. The compressed construction cycle also makes it attractive to some developers and builders. Production Concentrated Industry capacity has declined since the 1990s. In 2019, just 35 manufactured home companies had 133 production lines, and the top three manufacturers produced three-quarters of new homes. Even so, manufacturers have some excess capacity: One of the nation’s largest manufactured home producers, Skyline Homes, Inc., currently has five idle plants, according to a recent investor presentation. Additionally, the number of construction workers is 5% below the level seen a decade ago. Another large manufactured home producer, Cavco Industries, Inc., estimates that a single factory may need up to 400 construction workers. As a result, increased labor, automation, and innovation may be needed to address the backlog of orders listed in these companies’ -K financial reports. In fact, shipments to favorably disposed states have grown more concentrated. The top 10 states accounted for 62% of annual shipments in 2018, up from 54% just six years prior. Only one state in the top ten, Louisiana, saw a decline in shipments, to 5.0% in 2018 from 7.4% six years prior. Manufactured Housing Landscape Private Property Community New Manufactured Homes Placed for Residential Use by Location Share of Manufactured Homes Placed in Communities is Rising Manufactured homes can be placed on privately owned land or placed in communities where homeowners rent a pad-site from the community for a monthly fee. These pads also contain hookups for utilities. According to Sun Communities, Inc., one of the nation’s largest manufactured home community owner- operators, over the past three years, homes placed in their communities were only moved out at a rate of 0.8% per year on average.

[Assistant] Extreme Job Loss from Covid-19 Expected to Have a Detrimental Impact on Supply… It is estimated that over a seven-week period ending May 2 2020, over 33 million people filed for unemployment benefits, representing more than 20% of the workforce. Unsurprisingly, manufactured home builders have not been immune to the effects of job loss. Factories are starting to report the cancellation of orders for new homes. 7 Fewer Homes Eligible for Conventional Financing Even homes placed on private land frequently use chattel financing. In fact, while over three-quarters of new manufactured homes shipped are placed on private land, one-fifth are titled as real estate, indicating that these homeowners used cash or chattel financing to purchase their homes. Personal Property Real Estate Not Available Source: U.S. Census Bureau Manufactured Housing Survey New Manufactured Homes Placed for Residential Use by Type of Title In addition, manufacturers are expecting lower output due to a variety of other factors. Next Step Network recently surveyed manufacturers to provide insight into emerging trends. Respondents reported working with 22% fewer staff on average and all reported complying with social distancing. These two factors are expected to slow output. Manufacturers also indicated that they are concerned about a disruption in the supply chain for the materials they use to construct homes, such as lumber, drywall, and fixtures, among other items. As a result, many respondents estimated production would likely be reduced in the coming months. While about half of respondents estimated a reduction of 20% or less, approximately one-fifth estimated production could decline by over 30%.


[User] Manufactured Housing Landscape 2020 …and Will Likely Reduce Demand for New Homes Manufactured homes built to the HUD Code are generally sold by retailers that have showrooms with display models for consumers to view. Next Step Network also recently conducted a survey of retailers. While this data is limited, it does provide an insight into recent trends. Respondents indicated that measures have been taken to comply with state/local ordinances related to COVID-19 mitigation, with over 60% restricting business hours, reducing or altering staff hours to maintain social distancing, and requiring an appointment. More than 70% of respondents expect to sell fewer homes in the coming months. Of those, 88% expect up to a 30% decline in home sales.

[Assistant] Source:: https://nextstepus.org/wp-content/uploads/2020/04/Summary-of-COVID19-Impact-Survey_2020.pdf Note: Based on responses from 36 retailers across 16 states representing 57% of states receiving new home shipments in 2019 Tabulation of Manufactured Housing Retailer Responses to Next Step Network COVID-19 Survey Sell more homes 6% No Change 23% Sell fewer homes 71% Demand in Texas Likely Impacted by Oil Prices We expect that demand in Texas, which receives about 20% of shipments of new homes annually, will likely decline due to the oversupply of oil at a time when there is reduced consumer and industry demand for energy. According to the first quarter Dallas Federal Reserve Energy Survey, two -thirds of support services firms and 45% of exploration and production firms expect to reduce employee counts in 2020, likely contributing to a dampening of demand for new manufactured housing.


[User] Change in Sales Volume of Individual Properties (%) Source: Real Capital Analytics www.rcanalytics.com Increased Interest in Manufactured Housing MHVillage is a website that provides information on MHC, listing individual manufactured homes for sale as well as rental homes. As shown below, the website has shown increased traffic during the pandemic shutdown. In fact, traffic was higher than over the same time period in 2019. In addition, the website reports a 26% increase in new users during the current time period. MHVillage attributed the increase to a couple of factors. Manufactured housing remains an affordable housing choice for both home buyers and renters, and, with more people staying home due to the pandemic, there is additional demand for more space at home. In addition, according to the National Association of Realtors (NAR), there is also a low supply of inventory of single-family homes for sale. In fact, in July 2020, NAR reported 3.1 months of inventory of homes for sale, which was down 1.1 months from the inventory for sale in July 2019. All these factors have likely had a positive effect on MHC fundamentals over the past few months.

[Assistant] Multifamily Economic and Market Commentary 3 Two Types of MHC There are two types of MHC: All Ages communities and Age 55+ communities. Age 55+ communities, as the name suggests, are targeted to seniors. All Ages communities tend to attract families and those who do not want to live in seniors communities. Fundamentals in both segments of MHC appear to be stable in the face of the pandemic -- for now.


[User] Occupancy Remained Steady in Q2 2020 Third-party data vendor Datacomp/JLT, which focuses exclusively on collecting data for MHC, collected occupancy and rent data for metros in several states in Q2 2020 after most states had issued stay-at-home orders due to the pandemic. The aggregated data at the state level is shown below. The data for All Ages communities shows that, year over year, occupancies held steady during the quarter and even increased slightly statewide in some cases. While this may seem counterintuitive, in surveying MHC owners, Datacomp/JLT found the demand for homes actually grew during Q2 2020 as renters looked to purchase new homes for additional space and then chose to live on a site rented in an MHC. For instance, the average occupancy rate for All Ages MHC in Florida increased to 94% during Q2 2020 from 93% in Q2 2019. Occupancies also appeared to hold steady in Midwestern states based on data collected for MHC in Iowa and Nebraska. On average, occupancies rose by 1% year over year to 94% as of Q2 2020 in Iowa, and to 92% as of Q2 2020 in Nebraska. Rent Growth Remained Positive in Age 55+ Communities Rents, excluding payments for utilities, continued to grow for pad sites rented in Age 55+ communities in Q2 2020.

[Assistant] MHC Cap Rates Remain Fairly Stable… With ongoing interest from a wide variety of investors and few new communities under construction, capitalization rates for institutional-quality MHC have declined significantly in recent years, falling from an average of 7.3% in Q2 2010 to just 5.7% as of Q4 2019, as shown in the adjacent chart. In fact, cap rates for investment-grade MHC assets have been within one-half percent of multifamily cap rates since Q1 2017. As of Q2 2020, the average cap rate for MHC was 5.8% compared to 5.3% for multifamily. Thus far, the COVID-19 outbreak has not resulted in increasing capitalization rates for MHC. Instead, it appears that sellers have decided to remain firm on pricing, or simply pull properties rather than list them at all, keeping cap rates steady. In fact, the average cap rate of 5.8% in Q2 2020 was only 0.1% higher than the average as of Q4 2019.


[User] …but There Is Wide Dispersion There is generally quite a bit of variation in MHC cap rates, however. For instance, the 104-unit Hannah Mobile Home Park near Charleston, S.C., was underwritten with an 8.8% cap rate in January, according to Real Capital Analytics.

[Assistant] , which also tracks MHC sales transactions, also shows a wide dispersion of cap rates at time of sale during the first half of 2020. shows that about 15% of MHC cap rates at time of sale for the first half of 2020 were under 6%. Another 30% fell in the 6% to 7.9% range, and 25% fell in the 8.0% to 9.9% range. Just over 4% of MHC cap rates at time of sale were over 14%. However, tends to track smaller properties that tend to have higher cap rates on average. data reported the average number of pad sites per MHC sold in the first half of 2020 was just under 100, compared to just under 200 pad sites for sales tracked by Real Capital Analytics, during the same time period. Multifamily Economic and Market Commentary 5 Source: Manufactured Housing Distribution of Cap Rates during 1H 2020 Source: Real Capital Analyticswww.rcanalytics.com Quarterly based on trailing 12 month average. Includes property or portfolio sales $2.5 million or greater MHC Cap Rate Multifamily Cap Rate MHC Average Cap Rate vs. Multifamily Average Cap Rate


[User] According to recent manufactured home rental listings from MHVillage, the average asking rent for a pre-owned manufactured home in the Cleveland metro area was just $695, less than 75% of the average asking rent for an apartment in Q2 2020. However, the savings are even higher in major metropolitan areas. For instance, the average asking rent for a rental home in a MHC in the Chicago metro is $959 in Q2 2020, just 62% of the metro’s average estimated asking rent for an apartment. Nationwide, including rentals on individual plots of land, the average asking rent on all manufactured home rentals remains at about half of multifamily asking rent, making them a more affordable option for many renters. MHC Price per Site Rebounds in Q2 MHC are more thinly traded than traditional multifamily properties. Nevertheless, just as multifamily properties measure the price per unit (PPU) when a property is sold, MHC record a price per site where a home would be located when a community is sold. According to data from Real Capital Analytics, MHC price per site grew 2.6% quarter over quarter to an estimated $60,000 per site, as of Q2 2020, showing that MHC have held their value relatively well despite the COVID-19 outbreak.

[Assistant] Multifamily Economic and Market Commentary 7 MHC Face Some Uncertainty in the Near Term Even in the midst of the COVID-19 outbreak, fundamentals in the MHC market have not yet deteriorated. Age 55+ MHC are expected to weather the outbreak relatively well, due to both the ability of residents to be part of a community but remain socially distant and the fact that residents generally have steady sources of income. However, the MHC market does face some headwinds. Unemployment remains elevated, and the federal expansion of unemployment benefits and eviction moratoriums has expired – at least for now. As a result, the lasting impact of the COVID-19 outbreak on All Ages Communities remains less clear. These communities tend to have both lower income homeowners and renters, and many residents in these groups have been hit hard by the current recession. As a result, we believe All Ages communities may yet see some deterioration of fundamentals in the second half of 2020. However, one thing is unlikely to change: Given the lack of affordable housing in the country as a whole and the fact that few new MHC are likely to be built in the near term, we expect investor interest in the asset class to remain stable in 2020.


[User] 4 ECONOMY & POLITICS GDP is expected to end 2020 down by only 4.0%, followed by a 4.5% rebound in 2021.

[Assistant] 11 CAPITAL MARKETS Long-term technological and demographic trends, such as digitalization, will change investor preferences and push the industry to evolve, but capital will continue to target opportunities in real estate.


[User] 22 INDUSTRIAL & LOGISTICS Nearly 250 million sq. ft. of industrial net absorption is expected in 2021, more than the previous five-year annual average of 211 million sq. ft.

[Assistant] KEY STAT GDP is expected to contract by 4.0% this year, which should be followed by a 4.5% rebound in 2021.


[User] SUMMARY CBRE forecasts that the strongest growth of 2021 will occur in Q2 and Q3—5.5% and 5.6%, respectively, on an annualized basis— bringing U.S. GDP back to pre-COVID levels in Q3.

[Assistant] The real estate recovery is expected to lag that of the broader economy, particularly for the office, retail and hotel sectors.


[User] REAL ESTATE RECOVERY WILL LAG THAT OF BROADER ECONOMY The U.S. economy entered a deep recession due to the COVID-19 pandemic, with GDP plunging by an unprecedented 31.4% in Q2 on an annualized basis. As the economic lockdown was loosened, employment growth resumed in May and GDP grew by 33.1% in Q3.

[Assistant] Full-year GDP is expected to be down by only 4.0%, followed by a 4.5% rebound in 2021. CBRE forecasts that the strongest growth of next year will occur in Q2 and Q3—5.5% and 5.6%, respectively on an annualized basis—bringing U.S. GDP back to pre-COVID levels in Q3 2021. CBRE expects the real estate recovery to lag that of the broader economy, particularly for the office, retail and hotel sectors. ADDITIONAL GOVERNMENT SUPPORT NEEDED The $2.2 trillion economic stimulus package delivered by Congress in late March was extremely effective in stabilizing the U.S. economy amid the depths of the COVID-19 crisis. Although there is bipartisan consensus that additional stimulus is needed, Congress so far has been unable to agree on the level of funding. Consequently, the pace of the economic recovery slowed in Q3. Our forecasts assume that additional government aid is forthcoming at some point. This will be particularly important over the near-term for the multifamily (rent payments) and retail (consumer spending) sectors. A strong fiscal response also will lay the foundation for a more rapid recovery across all other property types, including office and hotels. Additionally, central banks have been purchasing government debt to keep long-term interest rates down and the economy stimulated. They also can tighten monetary policy through interest rate increases and balance sheet reductions when economic conditions allow. Still, governments cannot rely on quantitative easing (asset purchases) alone. Renewed economic growth will generate revenue to service debts. ECONOMIC OUTLOOK – CBRE HOUSE VIEW (PERCENTAGE CHANGES) Average Average GDP Growth (%) -4.0 Source: CBRE Research, September 2020. FULL RECOVERY DEPENDS ON MEDICAL SOLUTION A full economic recovery depends on a medical solution to the COVID-19 pandemic. To that end, there are five vaccines in large-scale U.S. phase three trials. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, has indicated that a vaccine could be available for all Americans by April 2021. Pfizer taxes and spending cuts), this will reduce overall debt- to-GDP ratios. Over the long term, there is a risk that governments could allow inflation to rise significantly to reduce their debt loads. FED POLICY CHANGE AND ‘LOWER-FOR-LONGER’ The Federal Reserve recently announced that it would allow inflation to move above the 2% target for several quarters after periods of low inflation. Consequently, the Fed likely will take a much more patient approach to rate hikes, essentially ensuring a “lower-for-longer” rate environment as the economy recovers. For commercial real estate, this likely will translate into greater downward pressure on long-term cap rates. Though low interest rates are generally good for commercial real estate, there could be other impacts not widely considered. For example, amid extended periods of extraordinarily accommodative monetary policy, central bankers have become more vigilant about preventing asset bubbles from developing, which could destabilize the financial system. This could include requiring banks to set aside more reserves and tighten underwriting standards. Such actions likely would impact loan-to-value (LTV) ratios for real estate.


[User] Debt to GDP Ratio Source: U.S. Congressional Budget Office.

[Assistant] Another secondary impact of this policy relates to foreign exchange rates. A lower-for-longer environment is conducive to a weaker U.S. dollar. This could make U.S. commercial real estate assets more attractive to foreign investors—particularly in gateway markets—and put additional downward pressure on cap rates in those markets. BOTTOM LINE GDP is expected to contract by 4.0% this year, followed by a 4.5% rebound in 2021. This will be facilitated by a medical resolution of the COVID-19 pandemic by the second half of 2021 and additional fiscal support for the economy. In addition, we expect that interest rates will remain lower for longer with the timeline for initial rate increases pushed back by several quarters. This will put downward pressure on cap rates, but underwriting standards and LTVs could be affected by efforts to maintain financial stability amid low interest rates.


[User] CBRE expects the recovery in property markets to lag the broader economy, due to the unique impact that the pandemic has exacted on the economy and how space is used.

[Assistant] As such, with a medical resolution in sight and continued economic growth, CBRE expects that all commercial real estate sectors will have started to recover by the end of 2021. Biden’s platform calls for $5.4 trillion in additional spending over 10 years. If enacted, expanded health insurance coverage likely will drive demand for medical space closer to the consumer and spur the conversion of some retail space. In addition, $1.6 trillion for infrastructure and R&D should benefit office and industrial real estate demand. Housing policy initiatives, such as tying federal funding to zoning changes to spur affordable housing development in suburban locales—as well as increased affordable housing subsidies—could present unique opportunities for residential real estate.


[User] taxes may impact capital expenditures by businesses and wage and job growth, but this could be offset by a more stable global trade environment. If pursued vigorously, Biden’s environment agenda would have implications for commercial building operating costs to meet higher energy efficiency standards.

[Assistant] The presidency and a Democratic Senate would enable Biden to enact large portions of his agenda. Most immediately, a larger federal stimulus package to support the economy would boost real estate demand in the near term. This provides some upside potential to CBRE’s 4.5% GDP growth forecast for 2021. More aid to state and local governments could reduce pressure to raise taxes on real estate. However, the popular 1031 tax-free exchange program would be threatened and luxury retail, energy, finance, defense contractors and tech could face headwinds from tax and spending policy changes and increased regulation. If Republicans retain the Senate, the Biden agenda will be checked and have a more subdued effect on the broader economy and commercial real estate. A more limited fiscal stimulus package would be enacted, with less state aid and the prospect, at some point, of higher state and local real estate taxes. On the other hand, the 2017 personal and corporate tax cuts would remain in place. Like any president, Biden will also have power to influence spending priorities and the regulatory environment, and to enact trade policy. The potential for less trade friction, especially with U.S. allies, may be helpful as the economy pulls out of the pandemic- induced recession. Overall, markets seem to view “split government” favorably and this scenario largely supports CBRE’s forecast of 4.5% growth in 2021.


[User] Investor sentiment also has recovered significantly.

[Assistant] CBRE’s Capital Markets Recovery Index—a composite tracker of economic conditions, real estate listings and investor interest—shows a 60% rebound from the April/May bottom. The index is strongly correlated with investment volume.


[User] CAPITAL MARKETS CONTINUE BUMPY RECOVERY The COVID-19 crisis has weighed heavily on commercial real estate investment activity. Investment volume in the first three quarters of 2020 fell by 44% from the same period last year. Nevertheless, activity is increasing as the year goes on. Investment volume increased to $61 billion in Q3 from a 10-year quarterly low of $46 billion in Q2.

[Assistant] Such indicators suggest a bumpy road over the next six months. But not all real estate assets are equal. During this downturn, investor preferences have shifted strongly toward industrial & logistics assets. Apartment buildings, especially in certain markets like Dallas and Phoenix, have been resilient. Office, retail and hotel assets are called into question, but distressed sales have been very limited. As the economy continues to recover, so does the overall demand for real estate. Long-term technological and demographic trends, such as digitalization, will change investor preferences and push the industry to evolve, but investment opportunities and capital for real estate will remain. If a vaccine for COVID-19 is available by mid- to late- 2021, the commercial real estate market will normalize based on abundant liquidity, low cost of capital and attractive returns. Available capital for real estate investment remains more than $300 billion globally, the majority of which is targeting North America. This wall of capital is a major contributor to the constrained expansion of cap rates. Industrial cap rates are at historic lows. Meanwhile, the Fed plans to keep interest rates near zero until 2023. Both inflation and risk-free yield from 10- year Treasurys declined sharply of late. At the same time, real estate cap rates have remained relatively stable. This rewards investors with a wider yield spread and additional gains from asset value appreciation. SUMMARY Office fundamentals should stabilize in 2021, although rents will continue to fall and vacancies will continue to rise at least through the first half of the year. The very gradual reentry of employees to the traditional workplace will constrain transaction activity in 2021 as occupiers reassess their office space requirements. Class A space likely will rebound quicker as more progressive portfolio strategies are employed to support new workstyles brought on by the pandemic. In the interim, this uncertainty is muting investment volume as buildings occupied by long-term creditworthy tenants are favored.


[User] URBAN VS SUBURBAN Suburban office markets are expected to recover faster than their CBD counterparts next year. While suburban office demand lagged that of CBDs after the GFC, the downturn in CBD office markets has been considerably more severe in this recession with disruptions to mass transit. Logistical barriers posed by COVID-19 to higher downtown occupancy will constrain CBDs’ recovery. In addition, a considerable amount of available downtown office supply will cause high vacancy to persist through 2021 at a rate only 80 basis points (bps) below its peak after the GFC. While suburban office markets also will see increased vacancy, the rate will remain some 3.7 percentage points below its peak after the GFC. Several megatrends such as shifting demographics support a brighter future for suburban offices, but there has yet to be any significant increase in leasing transactions that indicate a major shift by tenants to the suburbs is underway. OFFICE DOWNTURN TO STABILIZE Deteriorating office market fundamentals amid the sharpest downturn since the Global Financial Crisis (GFC) should stabilize next year. Continued economic recovery and an accelerated pace of hiring will counter occupancy declines and negative demand expected to start the year. The nation’s largest, most dense office markets have been disproportionately impacted by logistical constraints in tenant occupancy posed by COVID-19 and likely will struggle the most to emerge from the recession in 2021. Office vacancy will persist at a stubbornly high rate and rent increases will be difficult to achieve as market conditions remain decidedly in favor of tenants. An overhang of sublease space brought to the market in H2 2020, as well as an elevated level of new office completions, will contribute to persistently high vacancy in 2021. However, the office cycle will bottom out in 2021 as positive net absorption resumes.

[Assistant] previously office-based employees. A recent CBRE analysis suggests that remote working could cut the overall need for office space by 15%. But office-using employment will continue to grow after the recession and there may be some reversal of recent trends toward diversification. In short, it is too soon to know what the impact of remote working will be on the overall demand for office space, but it may not be anywhere near as much as some analysts suggest.


[User] When they do return to the office, companies may favor a hybrid work style that combines remote working with office use. Until then, companies are deferring leasing decisions and are reducing their space usage in line with lower economic growth expectations. Negative net absorption, which characterized the second half of 2020, will persist in the first half of 2021. FLIGHT-TO-QUALITY MAY ACCELERATE Early evidence suggests that the COVID-induced recession has had a more severe impact on Class A office occupancy than on Class B. In times of recession, Class A properties have historically experienced more volatility and rapidly deteriorating market fundamentals. Once the recovery accelerates in 2021, we expect Class A properties to experience much faster improvement in demand, vacancy and rents, as they have done in past recovery periods.

[Assistant] Occupiers are increasingly demanding flexible space options, shared meeting space, indoor air quality, connected building apps and touchless technology when considering new leases. Buildings that provide these desired amenities may find more favor by enterprise tenants as leasing volume resumes. Occupiers may reduce their amount of leased space in the future, but the quality of that space will become more important.


[User] MARKETS TO WATCH Secondary markets, particularly in the business-friendly Southeast, will perform more favorably in 2021. Raleigh-Durham, Nashville, Tampa and Charlotte will benefit from relatively resilient demand, lower costs and persistent demographic and employment growth. Some larger markets, such as Phoenix and Dallas-Fort Worth, will also benefit from these same demand drivers to a lesser degree. Markets with a high concentration of tech companies like San Jose, Austin and Seattle may stage an unexpectedly strong rebound in demand next year but will still have to absorb a significant amount of new office supply. At the other end of the spectrum, markets with high densities and a dependence on mass transit like San Francisco and New York City will have a slower recovery.

[Assistant] Despite a challenging 2020, there were fewer-than- expected flexible office space closures. The industry is expected to rebound in 2021 as occupiers shift their strategies away from long-term capital-intensive commitments. Many say they will strategically incorporate more flexible space options in their portfolios to satisfy temporary space needs, support a more mobile workforce and enter new markets to source talent. Flex space usage is expected to increase in 2021. UNCERTAIN SPACE DEMAND WILL CAUSE LESS INVESTMENT The office sector is expected to have among the slowest recoveries to pre-pandemic investment volumes. This sentiment is likely driven by the uncertainty around office space demand and which markets will benefit most from evolving trends, especially remote working. Investment volume is down significantly in 2020 and likely will remain well below pre-pandemic levels through 2021.


[User] SUMMARY Brick-and-mortar retail sales are expected to grow in 2021 as e-commerce sales decline after the 2020 COVID-fueled surge. New opportunistic and emerging retailers will capitalize on market conditions to absorb some of the vacancies from bankrupt retailers and store closures. Adaptive reuse and conversion will drive the repositioning of Class B and C malls, which have been hardest hit by COVID restrictions.

[Assistant] Private capital will lead investment activity as institutional investors largely retreat from non-core assets and urban markets that face a significantly longer recovery. BANKRUPTCIES & STORE CLOSURES WILL CONTINUE NEXT YEAR Retail bankruptcies in the first eight months of 2020 nearly exceeded the 48 in all of 2010 following the Global Financial Crisis. CBRE Research forecasts that retail store closures in 2020 and 2021 each will exceed the 2019 record of 9,800 reported by the International Council of Shopping Centers (ICSC). Many of the bankruptcies and store closures will result from COVID-related failures of structurally declining categories such as department stores and apparel, along with an unexpected cyclical reversal in restaurants, gyms and entertainment.


[User] New retail concepts will absorb some of the vacancies left by failed retailers. Digitally native brands, medical uses, health and wellness, automotive showrooms and service centers, pet services, franchisee- driven operations and salon suites will capitalize on opportunistic market conditions. Grocers, convenience stores and quick-service restaurants will also grow aggressively. Greater availability of prime second- generation space, declining rental rates and motivated landlords offering concessions and pandemic-related protections will drive lease transactions in 2021. Additionally, private equity and venture capital funds are actively seeking to finance new retail ventures provided they offer justifiable risk-return rewards.

[Assistant] ADAPTIVE REUSE/CONVERSION OF CLASS B & C MALLS CBRE Research predicts up to a 20% reduction in total U.S. retail real estate inventory by 2025 from the current level of 56 square feet per capita, according to ICSC. This will be triggered by large-scale adaptive reuse and conversion beginning next year, particularly among Class B and C malls that have been the most impacted by failing department stores and apparel retailers causing co-tenancy exposure. Further consolidation among mall REITs is expected in 2021, along with increasing sales of non-core assets as pricing resets under the duress and rising risk of receivership and insolvency.


[User] While mall owners have made bold moves with signature tenants to preserve occupancy and differentiate their properties through merchandising, the current problems REVERSAL OF RECORD E-COMMERCE GROWTH After falling in February, total retail sales growth resumed in June with the surge in e-commerce sales and the reopening of brick-and-mortar stores. Although e-commerce growth accelerated dramatically this year, the growth rate is unsustainable over the long term largely due to the operational and profitability limitations around shipping and logistics. Brick-and-mortar stores will be valuable in delivering the physical experience and deeper engagement that consumers want, as well as increased profit margins from the fulfillment of digital sales through buy-online/pick-up-in-store or curbside pick-up programs. The tremendous pandemic-fueled growth in e-commerce sales this year has begun to stabilize. CBRE Research predicts the rate of e-commerce sales growth will decline in 2021 for the first time since 2008, according to the U.S. Census Bureau. Growth will resume in 2022 at a more moderate pace.

[Assistant] Institutional investors will continue their retreat from retail except for quality core assets like grocery- anchored centers. Private capital will remain active and pave the way for the emergence of a new class of opportunistic investors and private equity firms seeking attractively priced distressed retail assets for stabilization, redevelopment or conversion.


[User] MARKETS TO WATCH There has been a clear bifurcation in consumer spending, retailer performance and market resilience between suburban and urban-core markets. Recovery is uneven and will take much longer in urban markets like New York City and San Francisco, where demand drivers are still severely handicapped. The suburbs will lead the recovery.

[Assistant] Sun Belt and secondary cities like Phoenix, Austin, Denver, Sacramento and Charlotte will benefit from faster office re-occupancy, increased inward migration, less impact to mobility and a greater prevalence of open- air shopping centers and outdoor space to enhance capacities. These markets will see less rent decline and likely will bottom out sooner than other markets. While availability will increase due to rising bankruptcies and store closures, there is better potential for absorption and adaptive reuse/conversion based on market strength. New “Zoom towns” are also emerging during the pandemic. Cities like Bend, Oregon and St. Louis with a smaller population base are benefitting from a rapid influx of residents relocating from larger cities for a lower cost of living as their jobs become more remote-friendly. CLEAR INVESTMENT BIFURCATION ACROSS PROPERTY TYPES & MARKETS Lack of clarity around rent rolls and net operating income make it difficult to assess the value of retail properties, furthering a pricing disconnect between buyers and sellers that kept investment activity stagnant in 2020. Investors will approach retail cautiously and selectively in 2021 while there is ongoing rent roll instability due to collection issues and vacancies and until there is greater income and pricing transparency. COVID-related rent negotiations and lease restructuring will continue in 2021 as some retailers will be unable to make balloon payments of deferred rent and will require additional deferral or abatement to stay open. Distressed assets are expected to rise in the first half of 2021, especially for those with debt coming due. There will be a clear bifurcation between property types and markets. Single-tenant net-leased properties and suburban neighborhood and grocery-anchored centers will continue to be the most resilient. Demand and


[User] KEY STAT Nearly 250 million sq. ft. of industrial net absorption is expected in 2021, more than the previous five-year annual average of 211 million sq. ft.

[Assistant] SUMMARY The U.S. industrial market will continue to flourish next year with low vacancy rates, record-high rental rates, robust development and a return to pre-COVID levels of absorption gains. Demand will be driven by an increase in online sales. Occupiers will expand both by location and size of facilities to accommodate supply sourcing, inventory control and customer reach. While economic and trade volatility remain potential headwinds, the volume and source of consumption will continue to dictate demand. MORE RETAIL-TO-INDUSTRIAL CONVERSIONS NEXT YEAR Given the increase in online shopping, retail-to-industrial conversion projects likely will accelerate in 2021 but should not lead to any oversupply given the challenges with such conversions in residential areas.1 There is strong demand for infill warehouse space in urban cores, but land constraints and high costs have limited new development. Adaptive reuse of retail buildings for industrial occupiers is expected to accelerate in 2021.


[User] Overall, new industrial completions are forecast to jump by 29% next year, according to CBRE Econometric E-COMMERCE WILL DRIVE DEMAND NEXT YEAR Industrial has been one of the most resilient real estate sectors amid the COVID-19 crisis, buoyed by rising e-commerce demand. Year-over-year e-commerce growth surged to 44.5% in Q2 from 14.8% in Q1. This has put pressure on retailers, wholesalers and third-party logistics companies (3PLs) to reach consumers while lowering transportation costs. Demand for space in the near term will be driven by e-commerce. CBRE Research has found that $1 billion in incremental e-commerce sales generates 1.25 million sq. ft. of warehouse space demand. Therefore, net absorption is projected to reach nearly 250 million sq. ft. in 2021, more than the previous five-year annual average of 211 million sq. ft. This will spur new construction, which is already near-record levels, and strong preleasing of speculative projects. Meanwhile, El Paso will benefit from its border location with Mexico and the recently enacted United States- Mexico-Canada Agreement (USMCA), which should increase its manufacturing and distribution base. Industrial asking rents in El Paso are forecast to increase by 28.5% over the next five years, according to CBRE Econometric Advisors.

[Assistant] INVESTORS WILL SEEK NEW OPPORTUNITIES Overall industrial investment sales volume increased by 17% in the first half of 2020; however, it declined by 39% year-over-year in Q2. Despite the Q2 decline due to COVID-19, sale prices were largely unchanged and cap rates were either stable or slightly lower. Despite record-low cap rates, capital is expected to continue flowing into the industrial market from both domestic and foreign investors. Most expect rental rate growth over their holding period, which will offset a low going- in cap rate. Industrial real estate will be a haven for investors compared with other commercial property types negatively impacted by the pandemic.


[User] 2. Class B and C light-industrial buildings in urban markets with below-average vacancy rates, including Northern and Southern California, Chicago, the New York Tri-State Area and Miami.

[Assistant] Advisors. Given strong preleasing of speculative projects (38% as of Q3), demand is expected to keep pace with new supply, especially as occupiers flock to modern warehouse space. INVENTORY CONTROL A TOP CONCERN Inventory control will be a prime focus of industrial occupiers next year, as they increase their footprints to store “safety stock” in case of any supply chain disruptions. Many suppliers will increase inventories from 15 days to as high as 60 days. Wholesalers and outsourced 3PLs will be expected to significantly increase inventories onshore to avoid the disruptions from trade conflicts of the past year. Many companies are utilizing a “China-plus-one” strategy to diversify product sourcing and limit any supply chain disruptions related to COVID-19. Source countries west of Singapore, including Europe, will generally use U.S. East Coast ports, while those east of Singapore will use West Coast ports and Central and South American countries will use Gulf and Southeast ports.2 Onshoring of product to the U.S. or Mexico is plausible but will present real estate, logistics and labor challenges. Diversifying or completely changing supply sources away from Asia is a long and arduous task with uncertainty over how much industrial real estate demand will be affected.


[User] MARKETS TO WATCH The Southwest and Southeast U.S. will have the highest rates of population growth over the next five years. In the Southwest, the Inland Empire will remain the dominant big-box industrial market.

[Assistant] Phoenix, Las Vegas, Denver, Salt Lake City and Reno also are posting robust industrial fundamentals and development because of their proximity to burgeoning populations.


[User] Texas will provide the most opportunities for investors and occupiers with forecast population growth of 9% over the next five years, largely benefiting the Dallas-Fort Worth, Houston and San Antonio industrial markets.

[Assistant] Strong fundamentals will continue to put upward pressure on rents, fueling investor demand. Overall industrial rents grew by 6.3% year-over-year in Q2 and this level of growth is expected to continue in 2021. In some cases, rent growth will be higher by market and size segment. Nearly 80% of U.S. industrial markets will see positive rent growth over the next 12 months and most will exceed their historical average over the next several years, according to CBRE Econometric Advisors.


[User] DEMAND FOR NEW DESIGN FEATURES Rising e-commerce fulfillment will require new design features for warehouse and distribution buildings, including ceiling heights upwards of 40 feet, multiple mezzanine floors and 3 million total square feet or more. In the short term, many of these buildings will be build- to-suits and significantly boost net absorption totals.

[Assistant] SUMMARY The multifamily sector will have a steady recovery in market fundamentals and investment activity next year. Suburban submarkets and the Midwest and Southeast regions will continue to outperform and provide good investment opportunities. Urban submarkets, particularly in gateway cities, have been hardest hit by the pandemic but will provide longer-term upside potential.


[User] Class A assets were impacted the most by COVID-19 this year due to higher turnover from young adults moving back home, steady delivery of new supply and renters seeking less expensive housing.

[Assistant] Class B assets should continue to outperform in 2021 with low vacancy and steady rent growth. Class A assets may not begin recovering until midyear.


[User] Lifestyle Millennials moving into life stages where urban living is often traded in for less-dense housing options in other submarkets and/or markets.

[Assistant] INCREASED MULTIFAMILY INVESTMENT IN 2021 With steadily improving market conditions, multifamily investment volume is expected to increase in 2021. CBRE Research predicts U.S. multifamily investment volume will reach about $148 billion next year, lower than 2019’s record level of $191 billion but a 33% gain over the 2020 estimate of $111 billion. Investor demand for multifamily assets this year was more than previous recessions would have indicated. Pricing held up quite well. Still, many investors moved to the sidelines as the COVID-19 pandemic spread. With greater clarity on future revenue streams, institutional buyers and value-add investors should become much more active next year. Offshore buyers likely will increase their activity, especially if travel restrictions are eased.


[User] Five major COVID-19-related factors diminished the appeal of urban submarkets in 2020: remote working requirements, the closing of a portion of urban amenities, the reluctance to use public transit, a desire for more living space and a desire for greater access to the outdoors. Non-COVID-related factors exacerbated the situation, including the high cost of urban apartments and shifting demographics. Millennials are reaching life stages where urban living is often traded in for larger housing options in less-dense submarkets. There are no indications that 2020’s decline in urban multifamily demand is permanent or there is an impending return to the hollowed-out cities of the 1970s and 1980s. Yet urban submarkets will lag in the multifamily sector’s overall recovery. Lower-density and less-expensive suburban submarkets held up remarkably well in 2020 and are positioned to lead overall market performance in 2021. The most impacted metros in 2020 were San Francisco, San Jose and New York. Other underperformers included Los Angeles, Boston, Seattle, Oakland, Austin, Miami, Chicago, Washington, D.C. and Orlando. Among these, investors may favor high-tech markets for their potential quicker economic recovery, but tech firms’ remote working policies may not restore multifamily demand as quickly. SUMMARY COVID-19 continues to affect the hotel industry. Fear, social distancing and economic turmoil have lowered hotel demand to unprecedented depths. Beyond the crisis, the outlook for travel is strong and resilient. There have been recent improvements in leisure travel and overall economic recovery is predicted to be relatively swift.

[Assistant] Effects of the pandemic on the hotel industry were felt most strongly in Q2, as lockdown mandates peaked in April and May and caused drops in occupancy and RevPAR not seen since the Great Depression of the 1930s. Occupancy is not expected to return to pre-COVID-19 levels until 2023, followed by RevPAR in 2024.


[User] CHAIN SCALE RECOVERY Higher chain scales have suffered the largest percentage and absolute drops in RevPAR this year. Upper upscale chains were particularly hard hit, with RevPAR briefly dropping below all other chain scales except for economy. Higher chain scales will take the longest to recover to pre-COVID levels. While economy and midscale chains are poised to regain pre-COVID RevPAR levels by late 2022, upper midscale and upscale chains will take until 2023 or 2024 to recover. Upper upscale and luxury chains will take the longest to regain pre- COVID RevPAR levels by late 2024 or 2025. By 2022 and 2023, RevPAR recovery will be more even among markets and more in line with long-term trends. By 2023, only the most severely affected markets will have less than 90% of 2019 RevPAR levels. In addition, some smaller markets such as Jacksonville, St. Petersburg and Savannah may gain additional demand as alternative destinations. CONTINUED LEISURE TRAVEL NEEDED While leisure travelers have helped prop up the hotel industry during the COVID crisis, a full recovery will not occur until group and business travel resumes. Small metros and rural areas are recovering faster, especially those that are drive-to destinations. POPULATION DENSITY A KEY FACTOR FOR RECOVERY Rural and interstate hotels have outperformed other location types this year. These hotels are often located in low-population-density areas that recorded modest gains in occupancy and ADR after the public’s fear of COVID-19 had peaked in April. Recovery to pre-COVID performance should occur sooner in these locations. High-density and urban locations will take longer to recover until the public feels safe to travel to these populous locations.

[Assistant] Hyperscale activity likely will level out in 2021 as demand drivers that spiked in 2020 begin to plateau, including enterprise clients leveraging hybrid IT solutions to accommodate remote working mandates. This trend likely will continue, albeit at a slower pace than in 2020. With more than 373 MW of wholesale colocation currently under construction across the seven primary markets, data center supply is expected to grow next year. 3. Cloud Migration: How will increased cloud services affect the leasing numbers for enterprise users who have decided to migrate to a hybrid IT approach? Alternatives are specialty operational real estate with relatively low inventory, less turnover and higher yield. Globally, alternatives investment has averaged about $90 billion annually over the past five years, more than double the peak in the previous cycle. Recent CBRE investor surveys found that 60% of respondents are actively pursuing one or more alternative sectors, led by data centers and health-care facilities.


[User] Long-term demographic, technological and social changes present generational opportunities for specialty players to grow the market as well as their market shares. Growth of the elderly population is driving demand for seniors housing and nursing care. And the recent explosive growth of online grocery and pharmaceuticals has fueled the cold-storage industry, while the ever- growing digital economy and widespread adoption of cloud-based services supports the growth of data centers.

[Assistant] LIFE SCIENCES Technological changes and medical discoveries have caused the life sciences sector to cluster near the nation’s premier research universities and health-care centers. COVID-19 has accelerated growth of the life sciences industry. COVID-19 has led to new requirements for lab/R&D and biomanufacturing space, increased production and manufacturing domestically and more support from policymakers. New lab/R&D and biomanufacturing space is being completed in markets with previously limited supply, as well as in leading life sciences clusters such as Boston-Cambridge and the San Francisco Bay Area. Lab conversions from other property types have also accelerated, especially in CBD markets. The strong supply growth of R&D space over the past several years has produced a growing need for more biomanufacturing space to produce many of the solutions and innovations devised in the lab. The strong correlation between venture capital funding and employment growth in the life sciences industry means there should be more hiring and demand for life sciences commercial real estate next year. Nevertheless, there are always risks for a burgeoning industry fueled by early growth stage and venture capital-funded companies. There is also the risk of a pullback in demand once greater progress emerges toward a viable vaccine or therapeutics to address COVID-19.


[User] The single-family rental (SFR) sector had stronger rent growth and lower vacancy than multifamily this year, although the recession did moderate rent gains. Next year will begin with less robust conditions than before the COVID-19 period. The BTR sector is still very small and

[Assistant] SENIORS HOUSING COVID-19 impacted this sector more than most with little new leasing activity for much of 2020. Deteriorating property fundamentals in Q2 and Q3 reduced investment activity significantly in 2020, but the 2021 outlook for both market performance and investment is brighter.


[User] The seniors housing market should slowly improve in 2021 but a full recovery won’t occur before 2022. New supply has moderated from recent years, but there are some markets with more supply than can be readily absorbed.

[Assistant] Real or perceived added COVID-19 risk could keep investment activity lighter than usual and financing harder than usual to obtain.


[User] The impact of Boeing’s workforce reduction on the Seattle metro’s multifamily sector is difficult to ascertain, especially since the advent of the pandemic in early 2020. Seattle’s multifamily rental market has been dealing with the headwinds of the economic shutdown and subsequent recovery, new multifamily supply, falling rents, and rising vacancy levels. Multifamily Economic and Market Commentary Due to the metro’s large high-tech presence, Seattle has a favorable demographic profile for the multifamily sector. According to Moody’s Analytics, the prime multifamily renter cohort (consisting of renters between the ages of 20 to 34) accounts for nearly a quarter of the metro’s population at 23 percent.

[Assistant] Over the next five years, the prime renter cohort is expected to expand by 0.3 percent, compared to negative 0.3 percent nationally. Seattle is expected to continue attracting Gen Z and Millennial residents due to the presence of well-paying high-tech jobs. In addition, over the next five years, Seattle’s overall population is expected to expand by 1.2 percent, compared to 0.5 percent nationally. The presence of Microsoft, Amazon, Google, and Boeing Co. –- despite its cutbacks –- is still expected to continue drawing new job seekers to the area, as there is steady demand for intellectual capital in the metro.


[User] Even though the Seattle metro has a very strong demographic foundation, there are some causes for concern that have emerged as a result of the pandemic. Remote working was prevalent prior to the pandemic, due to the number of high-tech jobs, but it has expanded substantially over the past year. Seattle is an expensive city, and multifamily property owners have not escaped unscathed during the pandemic. Estimated rent growth in Seattle as of fourth quarter 2020 declined by 2.5 percent compared to negative 0.50 percent nationally. In addition, the estimated vacancy rate increased to 6.25 percent as of fourth quarter 2020, which is the highest estimated vacancy level in more than 10 years.

[Assistant] Many employers within the Seattle metro have said that they won’t bring employees back to the office until well into 2021 and perhaps even later. Despite the uncertainty looming in its commercial real estate sector, Seattle’s economy is expected to bounce back rather quickly. Moody’s Analytics forecasts that employment growth over the next five years will expand by 2.9 percent in the Seattle metro compared to 1.8 percent nationally.