Executive Summary

  • U.S. GDP grew by 6.4% in Q1 2021, in line with consensus estimates.
  • Q1 growth was driven by government and consumer spending, as well as business investment.
  • CBRE expects growth to accelerate further in Q2 before moderating by year’s end. CBRE forecasts GDP growth of 6.7% for the full year.
  • Robust economic growth is expected to support improving commercial real estate fundamentals. Nevertheless, commercial real estate’s recovery will lag that of the broader economy.

Figure 1: U.S. Economic Outlook - CBRE House View (Percentage Changes)

Chart of gdp growth
Source: CBRE Research. Bureau of Economic Analysis.

Commercial Real Estate Highlights

  • Office: Growth in services that drive office demand remained healthy. Continued robust corporate investment in intellectual property bodes well for tech-driven markets. Office demand will begin to recover in H2 2021 as the vaccination campaign in the U.S. allows for normal activities to resume and offices to safely reopen.
  • Retail: Consumers benefitted from the COVID relief bill passed at the end of 2020 and the $1.9 trillion American Rescue Plan in March. Consumer spending on durable goods (appliances, electronics, home furnishings, vehicles, etc.) was particularly strong. Spending on services remained healthy as well. Consumer confidence is rising sharply and the near-term outlook for retail is strong.
  • Industrial: The sector will benefit from surging consumer spending and supply chains may even struggle to keep up with demand. Increased demand for durable goods also bodes well for the manufacturing sector.
  • Multifamily: Multifamily is a major beneficiary of the federal government’s recent economic stimulus packages. In addition to direct payments to Americans, $46 billion in rental assistance supported multifamily fundamentals in Q1. Moreover, the fast-recovering labor market will support household formation and the ability of renters to pay rent even as government support wanes over the next several quarters. Rising home values likely will price some potential home buyers out of the owner-occupied market, further bolstering demand for rentals.

The Bottom Line

Robust economic growth is in-line with CBRE’s forecast. GDP growth is expected to accelerate further in Q2 2021 to 10.1% before moderating in the second half of the year. Even as it slows, CBRE expects strong GDP growth of 4.2% in 2022. Beyond then, we expect GDP growth will return to its long-term trend level of around 2%. There is some potential for upside to this forecast, particularly if Congress approves a well-designed infrastructure package.

Robust economic growth in 2021 will continue to support a recovery of commercial real estate fundamentals. Industrial and multifamily will perform best over the near term. A recovery in office demand is expected to pick up pace in the second half of this year as offices are reoccupied and activities begin to return to normal. We expect recovery for retail and hotels will follow as vaccines and additional therapeutics give people confidence to resume normal live-work-play activities. However, a full recovery for the office, hotel and retail sectors is not expected for at least two years.