Real Estate Cos. More Optimistic Amid Vaccine Rollout

By Andrew McIntyre
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Law360 (May 4, 2021, 8:02 PM EDT) -- Commercial real estate players have become markedly more optimistic over the past six months about the prospects for investment in the sector amid the COVID-19 vaccine rollout, and logistics and biotech continue to lead the way, according to a DLA Piper survey released Tuesday evening.

According to the law firm's latest State of the Market survey, 51% of respondents said their optimism level for the coming 12 months was 7 or higher on a scale of 1 to 10, with 1 being bearish and 10 being bullish.

That's a stark increase in optimism from DLA Piper's prior survey last fall, when the vast majority gave responses between 3 and 6 to that same 12-month outlook question as investors leaned bearish in their outlook.

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"It's a very dramatic shift in sentiment from our last survey," John Sullivan, chair of U.S. real estate and global co-chair of real estate at DLA Piper, told Law360 in a recent interview before the law firm published its latest survey. "By and large, commercial real estate in the U.S. was in good shape before the pandemic. The fundamentals were good."

Now, "vaccines are what's giving people confidence," Sullivan added.

In addition to the vaccine rollout, Sullivan also noted that since the law firm's previous survey, there's been a drop in concern about U.S. trade wars, U.S. immigration policy and the impact of global political instability on U.S. gross domestic product.

DLA Piper's latest survey found that logistics continues to be the most attractive asset class as growth in e-commerce has fueled demand for logistics space close to major metro areas. E-commerce retailers are needing more and more space to make good on same-day and even two-hour delivery promises.

Sixty-one percent of respondents to the latest survey were optimistic about logistics.

"It was already doing quite well before the pandemic," Sullivan said of that sector. "The pandemic only increased the desire for logistics space and supercharged the demand for online everything."

Life sciences, like logistics, was also doing well before the pandemic, and the pandemic has brought increased attention to the question of where production happens, Sullivan said. Per DLA Piper's latest survey, 57% of respondents said they were optimistic about the life sciences and biotech space.

Regarding that sector, the traditional view has been to do manufacturing where it's cheapest, but COVID-19 has upended that mindset.

"The pandemic has shined a bright light on the importance of life sciences activities and the importance of how the distribution chain works," Sullivan said.

Sullivan said he's also seeing signs of recovery in the multifamily as well as hospitality and leisure spaces. On the latter front, he pointed to the billions of dollars Blackstone Group has invested in the hospitality and travel sectors as the private equity titan is betting on a major rebound there amid the vaccine rollout.

For example, Blackstone in March teamed up with Starwood Capital Group to buy Extended Stay America Inc. as well as an Extended Stay real estate investment trust subsidiary for roughly $6 billion.

According to DLA Piper's latest survey, hotels and lodging ranked significantly higher than office and retail in terms of investor optimism. Twenty-two percent of respondents said they were optimistic about the hotel and lodging sector versus 13% showing optimism for suburban office, 11% for downtown office and 9% for retail.

Meanwhile, as investors consider which geographical markets to target over the coming 12 months, cities in the Mid-Atlantic and Southern regions may see the most new investment.

Fifty-three percent of respondents to the survey said they were optimistic about Austin, 46% registered optimism for Nashville, and 40% said they were eyeing Raleigh-Durham, while Charlotte and Denver each got a nod from 32% of respondents.

Sullivan said there's a fierce competition for talent as companies are looking to set up shop in areas where they can find skilled workers. He noted the presence of the University of Texas at Austin as impacting investor confidence in that market and pointed to the various universities in the Raleigh-Durham area as playing a role in elevated investor confidence there.

"Cities like Austin and other ... Sunbelt, warmer climate cities were already on the upswing before the pandemic. The pandemic seems to have increased their popularity," Sullivan said. "I do think we'll see more of that."

DLA Piper's latest survey had 173 respondents, including company executives, real estate developers, property and asset managers, real estate investors, brokers, real estate debt providers and other real estate professionals. The law firm conducted the survey between Feb. 22 and March 22.

--Additional reporting by Benjamin Horney. Editing by Marygrace Murphy.

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