AN EXPERT ROUNDTABLE ABOUT THE CHALLENGES OF 2020 AND THE OPPORTUNITIES FOR 2021
W/ RYAN MCCORMICK, CICCY YANG, JULIE WHELAN AND RICHARD BARKHAM [11.24.2020]


 

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Spencer Levy
I'm Spencer Levy and this is The Weekly Take. With a holiday week in the U.S. upon us, we're taking a break from our usual routine and bringing you something special on this episode. We're sharing the recent flash call we held after the election with a panel of both CBRE thought leaders and independent experts in a roundtable moderated by yours truly. We discuss commercial real estate in context of current events, the pandemic and policies affecting the industry across sectors, markets and demographics. We look back at the challenges of 2020 and forecast a recovery into 2021 and beyond. Our guests feature CBRE’s Global chief economist Richard Barkham and head of Global Occupier Thought Leadership, Julie Whelan. We were also joined by Ryan McCormick, senior VP and counsel of the Real Estate Roundtable and Ciccy Yang, director of Global Markets for Hudson Advisors. A quick production note: this was recorded on November 17th with everyone gathered remotely on the Zoom so the format may sound a little different than our usual program, but truly it's filled with some enlightening perspectives and analysis.

Without further ado, a special presentation of our Flash Call. That's right now on The Weekly Take.

Ryan, let's get right down to it. We just had a presidential election. We have a new president. We congratulate President elect Joe Biden. But tell us what we do know and what we don't know politically about what's going on in Washington right now.

Ryan McCormick
Great. Well, thank you, Spencer. It's great to be with you and the CBRE team, so it's a very narrow election. Just to state the obvious shows, we are closely divided. Much of the attention has really gone to the result at the top. But I think possibly more important are the down ballot results. And here you can say that Senate Majority Leader McConnell and Senate Republicans really over performed. And even if Democrats windows both those Georgia Senate races, which we're all watching very closely, it's going to really be a majority in name only because there will be Democrats in the Senate who come from states that Trump won. I'm thinking of Joe Manchin from West Virginia, Jon Tester from Montana. And then in the House, House Speaker Pelosi and House Democrats really underperformed to the point where she is likely to have a working majority of only five to seven votes. So all this kind of creates a major check on some of the ambitious ideas proposed during the campaign. I think it puts a premium on where common ground and bipartisan agreement can be found, I suspect will be a lot less emphasis on divisive wedge issues. So what's this mean for real estate real quickly? I think it's generally quite positive from a governing standpoint. I think our industry, the sweet spot, really kind of falls there between the 40 yard lines. That's when you kind of get the most terrible policies and legislation. You get greater certainty. And so there'll be a reduction of policy risk, particularly in the tax area. And a lot of the policy agenda we're focused on, which we can get into a little bit later. It's really areas that we would argue are nonpartisan or bipartisan. So I think from a standpoint for the industry, it's really quite a positive outcome.

Spencer Levy
So, Ryan, let me re-emphasize one point. Just clarify, because this is a question we got from several people in the audience. Even if the special elections in Georgia both go Democrat and Senate control flips to the Democrats, your answer doesn't change. You still believe that we are largely going to have a very favorable business environment, at least for the next two years?

Ryan McCormick
I think that's right. I think the power center is shifting and you can watch cable news and you think it's very much with some of the most progressive voices in the Democratic Party. But I think regardless of the Senate races, the center of power is really going to be much more in the middle. And with some of those votes that can go either way on any given issue. And I think they're going to be quite reluctant to go with some of the more aggressive policies that were advocated by some of the presidential candidates and even Vice President Biden.

Spencer Levy
Well, last question for you, and then I'm going to pass it to my good friend and colleague, Richard, to talk about the economic impacts of this. But I think the one political/economic issue that we're all looking at is the amount and the timing of the stimulus. What's your current point of view?

Ryan McCormick
Yeah. So the roundtable, we're quite pessimistic that they're going to get this done during the lame duck session. So between now and January 20th, they're in session this week. Congress is there out next week and they come back for just a couple of weeks after that. I will say that the president elect has turned up the volume. He is speaking more forcefully about the need to get something done. But lame duck sessions historically underperform expectations. I think we'll be back here in terms of size in the range right now is kind of five hundred billion in the Senate, two point two trillion in the House. I would suspect we're going to land somewhere closer to the Senate, somewhere closer to a trillion or so, give or give or take. I don't I don't think we've got that same. In light of some of the more positive developments on the vaccine front, I think it's going to be tough to get a two trillion dollar bill enacted any time soon.

Spencer Levy
Well, thank you, Ryan. I'm now going to turn to my good friend and colleague, Richard Barkham, global chief economist, America's head of research. And Richard, the politics just changed in America, but we recently put out our 2021 outlook. So given the changing political environment, given the vaccine, tell us about our outlook and how those factors may have impacted it.

Richard Barkham
I think the presidential election, as Ryan alluded to, was a vote for centrist policies. Our working assumption, I think, is that we will get one trillion of stimulus, not perhaps as much as some people had hoped, but enough, I think, to see the economy through in what is a very nicely developing economic recovery and not enough, importantly, to put pressure, upward pressure on the long end of the market. So I think just enough and I think just enough, particularly since we've got some some brilliant news on the vaccine, frankly, which we see one or possibly more being licensed by Christmas and then rolled out in Q1 and Q2 next year so that we get to around 100 percent vaccination by Q2 next year. So our outlook for 21 is really shaped by the centrist policy, modest stimulus vaccine deployed. And I think. We're looking at economic recovery, we've penciled in 4.5 percent GDP growth for next year, but it could be higher than that. It will be back weighted. It will be weighted towards Q2, Q3 and Q4. And once the the vaccine is deployed, we can see, you know, the return to the office picking up. It won't be complete by the end of the year, but it will be started and we will see business travel picking up again. It won't be anywhere near back to 2019 levels, but it will be coming back. And all of those industries that were badly impacted by COVID bouncing back into a life probably a lot more vigorously than people expect. So that's our outlook for 2021.

Spencer Levy
Now, Richard, would you go so far as to say there is now light at the end of the tunnel? That's how strong the vaccine newsman's over the last two weeks?

Richard Barkham
Yeah, I mean, I think that's exactly right. But I think we might just be entering the dark before the dawn, certainly, you know, light at the end of the tunnel. But I think there is a big flare up in the virus in the United States and that's going to bring a certain amount of lockdown, which is a headwind for Q4. We've also got quite intrusive lockdowns in Europe, and Europe is 35 percent of the global economy. So there's a headwind there in terms of global demand. We got that great big bounce in economic growth in Q3. You just can't get that every quarter. So I think probably the news flow turns negative before it turns positive in Q1 and Q2 next year.

Spencer Levy
Thank you, Richard. I'm now going to turn to Ciccy Yang, our friend from Hudson Advisors. Ciccy, welcome. If there's any silver lining in the COVID-19 tragedy is that interest rates, particularly the long end of the curve, dropped substantially. We have seen a significant uptick, particularly at the long end of the curve recently. What does this mean for hedging costs of foreign capital flows coming to the U.S. who take a look at the US Treasuries as a indicator of strength?

Ciccy Yang
Thanks Spencer, and that's right. Markets over the past two weeks have reacted to reflect this likelihood of a more constrained Biden administration that may be more reactive than proactive on the fiscal policy front. But then you also have this dynamic of optimism that there may be light at the end of the tunnel, given the vaccine news. So in terms of moves and Treasury yields, we initially saw a significant fall amidst the initial uncertain post-election period, which suggested the markets did start pricing in a haircut on the size of fiscal stimulus. Over the past week, we've seen long term rates rebound and sell off on the back of positive vaccine news. And 10 year Treasury yields is hovering a little bit below 90 basis points today. That being said, on the flipside, when we talk about hedging costs, that is very much also driven by short term and medium term rates. And on that front, the Fed's been giving very strong hints that more fiscal stimulus is needed to keep the economic recovery on track. And if fiscal stimulus is more limited than what the Fed would prefer, this leaves a bigger role for the Fed, potentially more QE for longer and possibly an even further delay on the next Fed hike. And as a reminder, the Fed currently forecasts that they're going to be on hold until the end of their forecast horizon at year end 2023 as per their dot plots. So they're already forecasting short term rates to remain quite bound to the zero bound for quite a long time. So what does this mean for hedging cost? Currency hedging costs are driven by interest rate differentials between two currencies and low US rates translates to lower costs for foreign investors looking to hedge the currency risk of their U.S. investments back to their home currencies. Now, we already saw significant hedging cost declines from the beginning of this year when U.S. rates fell significantly in the flight to quality and Fed easing on the back of the onset of COVID-19. Just to give an example, the five year annual hedging cost for euro based investors in the US has fallen 100 basis points this year to 1.2 percent today, while it's fallen 50 basis points, two point six percent for South Korean investors in the same time period, there probably isn't that much more room for these levels to fall further. But given the likely expectation of accommodative Fed policy, it does feel like the lower currency hedging costs are generally here to stay in the near term.

Spencer Levy
Well Ciccy, if I could sum it up, is it fair to say that from a foreign investor or at least most foreign investors standpoint, the United States is on sale today and it's likely to continue for some time?

Ciccy Yang
It feels like that. It feels like that.

Richard Barkham
Yeah, I know. It's very interesting. I totally agree with what Ciccy says, but I don't buy that interest rates at current levels through to 2023. I think they'll be moving up in 2022. Not much in the absence of another economic shock. So not not something that we should worry about now, but something that will start to think about through 2021.

Spencer Levy
But you don't see interest rates spiking above three percent. Maybe, they get to two percent. Is that a fair statement, Richard?

Richard Barkham
Oh yeah, no. Three percent is kind of off the cards.

Spencer Levy
Well, now I'd like to go to my good friend and colleague, Julie Whelan, our global head of occupier research. We've got a lot of occupier clients on this call today. And we welcome all of you. Julie, what are some of occupiers thinking about the outcome of the election and how it might change some of their decisions, whether it be by industry or by location?

Julie Whelan

Based on what all of the panelists have said so far, I think that there is a generally positive backdrop for occupiers today. They are in a stable earning environment where it doesn't seem like policymaking is going to be terribly disruptive to them and there is hopefully going to be strength in our economic recovery. So I think that there are some decision making trends that they're going to have to follow that are honestly trends that we saw before COVID. In terms of their location strategy I think that there is definitely a flight to the suburbs. Millennials had already been edging up and out of the urban core, and now that trend has obviously been accelerated given the effects of the pandemic on urban cores. And similarly, secondary markets have really seen an uptick in population and business growth over the last decade and through people seeking quality of life and organizations going to seek talent where they are. And so I think that those two trends are certainly significantly going to continue and that is going to drive the occupier decision making in terms of where they are going to try to find talent in the future.

Spencer Levy
Well, Julie, I agree with you on the mega trend of people moving from New York, San Francisco to some of the southeastern Texas southwestern markets. But I'm not sure I'm completely with you on the suburban trend. I certainly agree with you from a live standpoint, but work standpoint, I don't think there's enough evidence yet. What evidence are you seeing that occupiers are going to move their workplaces to the suburbs?

Julie Whelan
So I think over the last decade, again, the trend of of large corporates has been to centralize into the urban core. And I think that the urban core still holds a lot of weight in future portfolio strategies. However, what I think is going to change is the centralization aspect of it. So what occupiers are signaling to us is that not only are they looking at a different mix of markets to source their talent from in the future, but they're also trying to figure out where should locations within the markets that they're already in, how should they be more distributed going forward? And the idea of sort of long commutes to get into a place of work driven by sort of a pre-dated nine to five schedule is changing. And the reality is that employees are exercising more choice and more autonomy over where they work. And so organizations are trying to figure out is their real estate strategy going to change, basically to meet their employees where they are. So if they have large contingents of the population and the urban fringe, maybe they start to set up locations in the urban fringe, either through flexible office space or through their own space. If they have enough of a need to satisfy those people, being able to have a place to go in and do undistracted work. At the same time, though, the urban core is still very important because it is going to be the best central place in the future for people to come together, to gather, to collaborate, which is what the role of the office is going to need to satisfy in the future. So again, we're very bullish on the urban core. However, I think that there are going to be satellite in other locations that support that in the future.

Ryan McCormick
It kind of gets into the policy issues as well, because we certainly hear frustration from property owners whose tenants, businesses, employers and their buildings are really not comfortable coming back because they don't have that framework of certainty about what their risks are on the legal front and liability and business issues. So we talk about the COVID relief legislation and stimulus bill in terms of the kind of the fiscal support for the economy. But there's some key policy issues there in terms of liability protections that we think will be part of that and be really helpful in the short term and create an environment that's more conducive for people to get back into the workplace, whether it's retail or office. I think you particularly see this in office settings where people can work from home. They'd rather have them in the office. But there is that kind of risk of liability issues that people really don't have any clear certainty yet with the pandemic.

Spencer Levy
Well, Ryan, let's keep digging on that issue, because I think what you're suggesting is that in the bill is pandemic risk concerns or at least some short term liability shield for employers for COVID, which is one of the things that the roundtable is working on. But based upon the questions that we've gotten from the audience, there were other specific issues that people are concerned about, including the ten thirty one exchange, including carried interest. Tax treatment will be capital gains or ordinary income. Why don’t you walk through where we are on the pandemic risks insurance and some of these other key issues for commercial real estate?

Ryan McCormick
Well, sure. I'll talk about one that we're actively trying to advance at this point, which is this concept of pandemic risk insurance. And that's a bit longer term, so there's a kind of a growing recognition that it's really better to plan and prepare now for these future economic risk associated with pandemic related and other potential government shutdowns and the economy, rather than just wait for the next time. And so at this point, two dozen industries, companies representing about 50 million workers and not just real estate, we're talking about the restaurant industry, entertainment, movie gaming, hospitality that have created a business continuity coalition to develop a plan here. And the concept is fairly straightforward, is kind of a public private business continuity insurance program so that in the event of a government shutdown in the future will enable employers to kind of keep payrolls and supply chains intact, protect jobs, reduce furloughs. But I would say this is very much in the early stage. I think this is going to take some time, just like the terrorism risk insurance program post 9/11 took some time to get into law, but we see it as one of those long term issues that it's going to be really important and it bubbles up because we see increasingly that tenants are seeking some protection in the event of future government shutdowns from lease payments and rental payments. And so the property owner is looking for some kind of insurance coverage in the event that there are risks that arise there. You mentioned the tax issues. So a lot of tax proposals got thrown around leading up to the election. I'm not unusual. We saw those in the last time around as well. I think that the most immediate term, the next several months, the focus is really going to be on we have a weak economy. We're trying to stimulate. We're trying to bring those 10 million jobs that were lost back. So I think some of those risks are not as great. But once you get past that, certainly Vice President Biden, now President Elect, had about a four trillion dollar tax plan going into the campaign. We'll have to wait and see what he really seeks to advance. We're optimistic on, like, kind exchanges. I know we get those questions as well. Is Congress going to repeal Section ten thirty one? I just emphasize that this is a provision that's been around since 1921. It's been, I would say, litigated, prosecuted by Congress on multiple occasions and it has survived at least for for real estate. We think it's particularly important during periods of economic stress. And when you dig into the economics of it, it's pretty positive for for spurring investment and capital expenditures. So we're bullish there, carried interest wasn't talked about so much because the Vice President talked about raising the capital gains rate to parity with ordinary income. If you have same capital gains rate as you have with ordinary income, carried interest is no longer an issue. But that = issue, we think, will be part of the debate. But again, I think there is a real check on the ability to pass a significant debt tax bill in this environment.

Spencer Levy
Well, one other tax issue, which I think it's fair to say we don't know the answer to either, and goes right to Julie's point about the movement of people from high tax places to lower tax places, the SALT tax deduction, which was eliminated in the Trump tax plan a couple of years ago. Do you think there's any chance of that coming back?

Ryan McCormick

I think it's tougher with the election results because we thought we might have Senate Majority Schumer from New York, who has made this a key issue for him. That's not the case, at least for the immediate future, depending on what happens with these Georgia races. But you could conceivably see some kind of deal made where you have some temporary maybe increase in the SALT deduction. That's what's in the House stimulus bill currently is a temporary suspension of the cap on the SALT deduction. But I think I think it's going to be tough. And I put the odds pretty low at this point for four changes even on the SALT deduction.

Spencer Levy
Great. Well, thank you, Ryan. Let's turn back to you, Richard. Let's go to real estate and talk about fundamentals and capital markets values. Given the changes that we have seen politically, vaccine and otherwise, what is our outlook for the major asset classes fundamentally and from a capital markets perspective?

Richard Barkham
I'll kick off with capital markets because one thing we've seen in this crisis is just how much quantitative easing the Fed has done, but also the the European Central Bank and the other central banks around the world. Again, I've used this term wartime. It's a huge increase in quantitative easing. And what all of our econometric models are picking up is previously I think it was just kind of the bond rate and fundamentals that drove cap rates. Now, I think it's the bond rate, quantitative easing and fundamentals, so I think we've got low bond rates, we've got a huge increase in quantitative easing. It is really surprising to to say, therefore, I think that the economics points to cap rate stability or even cap rate compression in certain markets. Now, let's go on to fundamentals. You know, where are we seeing that cap rate compression already? We're seeing in the industrial sector, because I think with the the jump in Internet penetration of retail, industrial property has hardly broken step in the crisis. We talked about this in our early calls, we thought maybe a year recovery for the industrial sector. No more like a quarter, as it's turned out, a huge amount of fundamental demand and a huge cap rate, a huge pressure from investors. Same with multifamily. You know, we had thought with unemployment spiking that we would get just a big drop off in rental collections there. Well, you know, with all of that transfer income, all of that government spending going directly to support the income of consumers, but we didn't see any real material drop off in collections some and there may well be some to come because of this kind of hiccup we've got in the next quarter. But, cap rate, downward pressure there, particularly on suburban assets, a bit less so in the big coastal expensive coastal cities where we're seeing vacancy rate increasing quite sharply. But as an asset class, as a sector, still pretty healthy. Retail of course, you know the fundamentals there. We've seen a huge number of of retailers go into bankruptcy due to the combined effect of ecommerce, but also the COVID crisis. So, I mean, the fundamentals remain very tough in physical retail. I suspect this might be the one one sector that really surprises on the upside in 2021, just given the weight of money that's in consumers hands. And, you know, consumers have built up, oddly enough, huge savings ratios as well. So that can bankroll, I think, some retail. But I mean, retail will remain vibrant, but in a in a smaller footprint. And some of that will play out in 2021. And then we've got offices and I don't think we're going to see any really positive fundamentals there till we get people back into the office. And I'm afraid that's going to be 2022. Office will start its recovery second half of this year. I think you can play it both ways with regard to cap rates there. On the one side, that weakness in fundamentals is going to potentially see cap rate expansion. On the other hand, the opportunity that is America right now due to the lower hedging costs and due to the low currency and the recovery taking place, you just might see kind of more more pressure on cap rates are more stabilizing pressure from buyers. So that's our kind of fundamental outlook. Values have been surprisingly resilient given the nature of the economic hit that we've had.

Spencer Levy
Sure. And I'll give one other green shoot if I can. Chris Ludeman at the opening talked about the foreign investors coming into the US. I'm aware of five of those deals, all in the office sector. Now, they are all net lease deals, longer term credit tenant deals where they're all pricing at or near or below, in some cases record levels. So there are some green shoots even in office. It is the multitalented office space where I think space is still trying to get some more price discovery. But Ciccy, let's go back to you now. And when we talk about the election and its results, we talk about interest rates. I want to turn now to the value of the US dollar, which seems to have gotten weaker and may get continued weaker. I saw the value of the Chinese Renminbi this morning at a very strong level. So number one, what do you see is happening to the value of the US dollar and how might this spur additional foreign investment into the United States?

Ciccy Yang
We've seen broad US dollar weakness since the elections, mainly due to a combination of expectations of an accommodative Fed as well as positive vaccine news, which supports global risk premium since the US dollar is a safe haven currency. So for foreign investors, you don't hedge or only partially hedge affects this weakness in US dollar could be a good entry point for these investors and incentivize them to invest more in the US today. That being said, if we look at what might drive US dollar valuations in the near future, those same drivers are still going to be in play, which is expectations of very easy monetary policy, as well as hopefully a reduction in risk premium as the global health picture improves in 2021. So we may still continue to see US dollar weakness in the coming medium term.

Spencer Levy
Great. Well, Julie, let me turn back to you now, and I want to go a little bit deeper onto industry segment. And do you have any thoughts on how different industry segments that are in some of let's just call what it is more politically sensitive areas may be reacting to the election from health care to oil and gas to military spending. But I also want to ask you about Green Initiatives, about ESG. About how corporations might be looking towards that, as clearly President Biden is much more bullish on green initiatives than was the prior administration. What are your thoughts, Julie?

Julie Whelan
Yes, so it's an interesting question, I believe that part of that question was also around government contracting. So I think that we have to really see how spending is shaped basically by who gets appointed into key roles under the Biden administration. I think that it's likely that defense spending may go down a little bit, spending around renewable energy, clean energy may go up. U.S. manufacturers are, of course, going to be of top priority when it comes to that. And then you have tech, especially large tech, which is going to remain a focus of antitrust concerns. That would have been true under either party. So that is certainly a challenge for them in the future. And from a regulation standpoint and how it's affecting industries, I think that obviously after a period of deregulation and the sort of clean energy agenda and climate change goals that Biden has, that we can expect environment and energy regulations to affect companies. Obviously, companies that are focused on clean energy versus fossil fuels will be impacted differently. But as far as your question about environmental social governance, I think that clearly, like I said, Biden is has a clear agenda on climate change goals. How that plays out in the face of his first agenda, which has to be the public health challenge, remains a question. But I think it's really important to realize that this is not just a government issue. This is something that private companies have been working into their agenda for quite a while now. If you look at the total size of the dedicated sustainable investment market today, it's about a hundred billion. There are estimates that could grow to five trillion by 2030. And so clearly, this is being driven by public private sector alike and it is going to impact real estate. CBRE just earned a position on the Dow Jones Sustainability World Index. So from construction to property management, real estate practices can make a really big difference here. And it is something that is going to be clearly high on the agenda of corporate occupiers in the future. Again, not just because of the government agenda, but because it is the socially conscious thing to do that both shareholders and employees alike are looking for.

Spencer Levy
Thank you, Julie. I think this is a good segway when we talk about the environment, which is clearly a global issue, the global implications of President Biden and what it might mean for commercial real estate, specifically on the future of globalization. I was on a call about two weeks ago with Parag Khanna, who is one of the world's leading demographers. And what he suggested was that the world is going to become more regionalized, meaning more trade with Canada, Mexico and South America, perhaps less trade with China. And so, Richard, let me turn to you. What is your point of view on how the Biden administration may bend the curve on globalization? And what does this mean for commercial real estate?

Richard Barkham
Well, firstly, I think that we will see a much less confrontational approach from President Biden than President Trump, it's a question of style and much more likely to work through multilateral channels like the World Trade Organization. But I don't think we will see the Biden administration easing off on China in terms of fair trade practice. And I don't see the Biden administration easing off on China on its kind of geopolitical ambitions. So we might get a change in tone, but we may not get a substantive change in policy. What does that mean? Well, that means, as you have pointed out, American corporates will be at least the manufacturing sector, pulling back a little bit of the supply chains out of Asia, maybe into Central America. And, ywe've got the USMCA, the new trade agreement that replaced NAFTA makes that easier to happen. So Mexico, I think, probably stands to benefit a little bit there. But I think the same will be true also of China. China buys goods, tech goods from America. The imbalance is quite big. I mean, America buys more from China than China from America. But China will bring back its its its trade, its supply chain. So I think those who are interested might want to look at the future for Japan and Taiwan, for instance, in supplying high tech goods into the China manufacturing sector. So I think we do see those regional trade bodies becoming a bit more distinct. But I don't know that I see it particularly in the service sector or the finance sector or the cultural sector or the digital sector. So I think for globalization more generally, probably it's business as usual, with some realignment and some hardening of supply chains. And we should. You asked about real estate. I think we might want to have a look at what the impact that might have on the West Coast ports and the supply pipeline chains through West Coast ports, maybe have a look at more goods coming up from Central America into the central US logistics centers and the East Coast ports. I don't think it will be a very massive change, but we might see some shifts in activity there.

Spencer Levy
Well, I'm going to turn now to Ryan for a second, because I think when we talk about regionalization reshoring, it brings up the very sensitive political issue of immigration. And I know in the commercial real estate industry, we've used EB five and other immigration tools to bring capital to our industry. But what I heard from the manufacturing side in speaking to our colleagues in both our incentives group and the labor analytics group, is that there's a shortage of skilled labor that slows the growth of manufacturing coming back to the United States. So where are we on EB five and any other immigration matters that might impact our industry, Ryan?

Ryan McCormick
That's a great question. I think a lot depends on whether we're able to kind of just hit some singles and doubles kind of for a change instead of just going for home runs with a big, huge, comprehensive immigration bill. I don't think we really know the direction that this administration intends to take on that question. I mean, we do know they're going to do an executive order, I take it, on day one on deferred action, Dreamers in the US. But certainly I think you could find bipartisan support for some policies, some new more liberal policies with regard to skilled immigration and H-1B visas, EB five and elsewhere around there. And the question is, can we get away from this mentality of having to do everything all at once? And that's the only way to kind of approach immigration policy in Congress. And so we're hopeful that we can maybe have more of a piecemeal approach. But, Spencer, sorry, I don't have a firm view on what direction we're going to see from this administration. But if I could add on the globalization, anything we're particularly focused on is in the inbound investor in US real estate. There have been some very significant changes in the last couple of years and kind of the reviews that go in under consideration when you have large inbound investments in US real estate. And so it will be very interesting to see what direction this administration takes there. At the roundtable we've been really worked hard to try and liberalize the rules on FIRPTA and try and make it less discriminatory for the foreign investor with regard to capital gains taxes. We had some good luck on that issue. It's a bipartisan issue. That's another one where things like FIRPTA, opportunity zones, others where there's potential for bipartisan action.

Spencer Levy

Well, I think you're being a little modest, Ryan, we should all owe you and the real estate roundtable a round of applause for the terrific work you did on FIRPTA, because I know we fought on that issue for years and you guys really made some terrific progress. I know there are still more ways to go, but well done on FIRPTA. So we're almost out of time here. So I'm going to do a very quick lightning round among my colleagues here for some last minute questions. And I would ask all of you to give a very short one word answers, if possible, to these questions. So the first question is to you, Ciccy. The 10 year Treasury is now just under 90 basis points. Where will it be at the end of 2020 and 2021?

Ciccy Yang
I have to caveat this one, unfortunately, so obviously it's impossible to predict exactly where the market is going, but assuming the market is looking into future vaccine in the middle of next year, maybe one to one and a quarter over the course of next year kind of range, we're just going to be kind of limited by Fed accommodative policy.

Spencer Levy
OK, Richard, same question to you.

Richard Barkham
I go along with Ciccy. Above one at the end of this year, maybe one point two to one point three end of next year. I've been pretty bullish or at least optimistic on the economy. I would say that all of our forecast conditioned on them not being another shock to the economy, these shocks to the economy, they can come out of anywhere. And we're in a pretty weak state at the moment, but with a fair wind that's what I would say.

Spencer Levy
OK, next question to you, Ryan McCormick. The Senate will stay in Republican control. True or false?

Ryan McCormick
True. I believe so. Of course, I went to predict the result in Georgia in the presidential election. So elections can always be surprising. But right now, I think Republicans have an edge there.

Spencer Levy
OK, very good. Julie, two questions in a row for you. Question number one now, Julie, you should know, has been on the lead of CBRE surveying our Fortune 500 clients, some fantastic surveys, some of the best industry in the information in the business. But given all that information, Julie, I'm now going to ask you the trillion dollar question. When it's all said and done, the total amount of office space requirements that will will be reduced by blank percent.

Julie Whelan
All things being equal, meaning that employment does not grow. I would say 15 to 20 percent, however, hopefully office using employment will continue to grow and our office stock and office demand will grow in line with it.

Spencer Levy
OK, next question for you, Julie. The blank industry is best positioned to ride out the COVID-19 storm and will be most likely to increase its office footprint in the future.

Julie Whelan
So I'm going to give two answers here. Number one tech has driven our leasing activity, and I still think the tech is very poised to drive a lot of future leasing activity, despite what the media might be telling us with their work from anywhere trends. That being said, there are smaller segments of industry like life sciences that are certainly wants to look out for. And if your office building can meet the needs of that specialized type of office space, and that is a home run.

Spencer Levy
OK, two more questions. Next one to you, Ciccy. Blank will be the country that leads foreign investment into the U.S. in 2021 and we will see an increase in foreign investment in 2021.

Ciccy Yang
First one, if I had to throw a region out there, probably Europe, because we're seeing hedging costs at lows and we're seeing a very poor economic picture as compared to economic recovery here in the US. That being said, I do doubt that we're going to see more flows coming to the US on in total just because if we see an improved economic global picture next year with the vaccine, the US is considered a safe haven currency investment zone. And we would generally in that situation see more investment into, for example, EM countries.

Spencer Levy
Thank you, Ciccy. And my last question to my good friend and colleague Richard Barkham. Sometimes when I ask this question, I go back to my Sesame Street days and try to think of the different letters in the alphabet. So I'm going to go there with you right now. When economic historians look back at the COVID-19 crisis, the shape of the recovery will be a V. Are you a K or something that, as far as I know, is not even a letter, a Nike swoosh or perhaps all of the above, depending upon macro and micro?

Richard Barkham
I think it's going to be a V stroke, Nike swoosh that seems to be pretty clear. We've had the V shape, now we're into the easing of Nike swoosh shape. But I think there are elements of truth about this K-shaped recovery. And Western world will have to look to making sure that the people who are hardest hit by this just make it through so that that's what I would say. V, swoosh. And let's keep an eye on that K state of affairs.

Spencer Levy

All right. So three out of the four, the answer. But I'm going to nail you down: more Nike than K.

Richard Barkham
Absolutely no question.

Spencer Levy
We'll go with that. Thanks to our guests and thanks to you for joining us, here's to a happy Thanksgiving all around. For more on our show, check out CBRE.com/TheWeeklyTake. We'd also love your feedback. So if you found us on Apple podcasts, Spotify or another platform, please subscribe rate and review us wherever you listen. Once again, thank you for joining us. Until next time, I'm Spencer Levy. Happy Thanksgiving. Be smart. Be safe. Be well.


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