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CRE Buyers Looking For Pandemic-Induced Discounts Are Coming Up Empty-Handed

A sharp recession launched by the coronavirus outbreak last March pushed commercial real estate investors to the sidelines, many preparing to leap when deep discounting emerged. 

The anticipated asset price haircut in CRE never arrived, CBRE says in a new report. Eight months after the economy's initial stall, there is still a large pricing gap between buyers and sellers. 


CBRE surveyed investment and valuation professionals about cap rate conditions and investor sentiment during a 14-day period in mid-August. The study excludes hotels and retail properties not anchored by grocery tenants. 

Of the investment professionals surveyed, 61% of buyers across property types said they are looking for discounts on assets post-pandemic, but only 9% of sellers said they are willing to reduce their asset prices from pre-coronavirus levels, CBRE said. 

The office sector showed even deeper disparity with 95% of investors hunting for discounts, and no sellers willing to slash their prices on assets. 

A lack of clarity on net operating income and valuation levels is driving bid-ask spreads wider for value-add deals, CBRE said.

Sellers are holding tight to pre-pandemic underwriting assumptions, with roughly two-thirds of respondents expecting an investment recovery to come within a year's time. 

One-third of those surveyed are using the same rental income benchmarks from the first quarter of 2020 when underwriting assets. The remaining two-thirds have tightened their underwriting standards from pre-coronavirus levels. 

Most of those who say their underwriting hasn't changed are linked to the industrial market, which has experienced ongoing demand on e-commerce growth. 

Despite the bid-ask gap, cap rates remain stable and even fell for quality industrial and multifamily buildings, CBRE Global President of Capital Markets Chris Ludeman said in a statement. 

Eighty-five percent of respondents on the investment side of the market say tenant quality is now of greater importance when processing deals. Other factors growing in importance include the length of tenant lease terms and occupancy figures. 

Optimism abounds across the market, particularly in the industrial sector, where 90% of respondent investors say activity will resume to pre-downturn levels within a year. Eighty-four percent of multifamily investors feel the same way.