4 In 10 CRE Executives Expect Rental Drops in 2021

Office Finder Team

December 9, 2020

Global

GLOBAL – With the COVID-19 pandemic impacting demand for rental space, a large percentage of surveyed commercial real estate (CRE) executives are expecting declines in rent and occupancy levels, according to Deloitte’s recently published 2021 CRE Outlook.

Globally, 40 percent of respondents believe rent of commercial space would fall next year, while 59 percent of them think that occupancy levels would decline.

In particular, 9 percent are expecting office rents to fall by over 10 percent. 20 percent expect declines of 6 to 10 percent, while 23 percent are forecasting that office rents would dip by 1 to 5 percent next year.

In terms of office vacancy, 40 percent think that it would rise by 6 to 10 percentage points, while 26 percent believe that vacancy levels would increase by 1 to 5 percentage points.

In Asia Pacific, only 37 percent are anticipating drops in commercial rent, although 74 percent expect that commercial vacancy rates would rise significantly.

Comparatively, 47 percent of North American respondents are expecting rental declines, while 49 percent forecasted that occupancy levels would deteriorate.

“Companies are also incurring higher operating costs because of the additional health and safety measures they are implementing in office spaces,” said Deloitte & Touche LLP’s US Real Estate Leader Jim Berry, and its Global Real Estate Sector Leader Kathy Feucht.

“Our estimates show operating costs could increase by at least US$19.4 psf, which equals 5.8 percent of the average annual office rents at the beginning of 2020,” they noted.

The survey was conducted by the Deloitte US Center for Financial Services from July to August. It involved 200 CRE executives in North America, Europe, and Asia Pacific.

The research included CRE firms with assets under management (AUM) of at least US$100 million in 2019. 29 percent had assets valued at between US$5 billion and US$10 billion. 31 percent had more than US$10 billion, while 40 percent had AUM of over US$100 million but under US$5 billion.