Creating Resilience

Early Assessment: Omicron Heightens Risks, But Unlikely to Derail the Economy

November 30, 2021 3 Minute

  • CBRE is maintaining a positive outlook for the economy and commercial real estate in 2022, despite uncertainty over potential impacts of the COVID omicron variant. While the new variant will impact the timing of a large-scale return to the office, fiscal and monetary policy remains highly supportive of economic growth.
  • Uncertainty will not go away quickly: Public health officials and pharmaceutical companies indicated late last week that they need at least two weeks to determine the efficacy of vaccines against the new variant.
  • However, medical professionals will confront this variant with a greatly enhanced toolkit, compared with the start of COVID-19, including the ability to quickly reformulate vaccines and the availability of new antibody treatments and powerful antivirals. This may limit the potential for the most disruptive public-health measures.
  • As with other variants, consumers may alter their behavior, but continued economic growth remains our base case at the present time with relative resilience in real estate markets.

The emergence of the COVID omicron variant creates downside risk but we believe it will not derail the economy. While earlier variants have adversely impacted the office, retail and hospitality sectors, they have not outright halted the recovery because of intense government stimulus. Global fiscal and monetary policy remain highly supportive of economic growth. Initial reaction from some large occupiers indicates they are monitoring but not changing plans to return to the office at the present time.

It will be at least two weeks before pharmaceutical companies can determine the efficacy of current vaccines against the omicron variant. At present, medical experts expect a degree of protection to remain, though overall efficacy against infection may be diminished. Should reformulated vaccines become necessary, pharmaceutical companies have indicated that they could be ready within three months. Newer antibody treatments and antiviral pills are expected to remain effective at treating the new variant.

Though omicron represents a potential downside risk, we continue to expect U.S. GDP growth of 4.6% next year due to current momentum and the effects of fiscal and monetary stimulus. This will fuel demand for commercial real estate, including positive net absorption in the office sector. Other sectors sensitive to public health, including retail and hotels, are also expected to benefit from strong economic growth. Multifamily and industrial & logistics will remain the strongest sectors. Overall, we continue to expect fundamentals to support an increase in commercial real estate investment volume of between 5% and 10% in 2022.

It is possible that the omicron variant will cause further disruption to global supply chains, which will hinder growth and possibly lead to further inflation. This will be uncomfortable for the Federal Reserve, which is signaling that it wants to start tightening policy by reducing the level of asset purchases. However, we believe that if the economy slows, the Fed will dial back the pace of tapering. In addition, the recently enacted federal infrastructure spending package will inject more fiscal stimulus into the economy in the months ahead.

The emergence of the omicron variant, following the delta strain, sets a pattern for the next few years, so we expect COVID will remain a fact of daily life for the foreseeable future. This will lead to bouts of market volatility and heightened anxiety. However, society now has a greater understanding of the virus and the ability to manage its effects. The slow rebound of the office sector, alongside accelerated demand for industrial space and single-family homes, will continue to characterize the real estate recovery for some time.

CBRE will continue to monitor the latest scientific information to understand how omicron may impact the economy and the real estate market. Overall, we expect real estate to remain resilient as it has over the past 12 months.