Capital Markets Overview: 2021

Chris Paszyc, CCIM, SIOR  /   May 7, 2021


Capital Markets Overview: 2021

Chris Paszyc, Broker & Partner

Originally featured in our 2021 Greater Portland Market Outlook.

In last year’s Market Outlook, I said that there was a growing consensus that the commercial real estate market had peaked in the cycle and was experiencing a deceleration. However, indicators pointed to a soft landing and it looked like we might stave off a recession. Little did we know the pandemic was lurking just around the corner.

In order to evaluate and forecast our capital markets outlook, we need to consider the global events of 2020, dominated by the coronavirus and the presidential election.

Between December 2019 and March 2020, news outlets began to report on the outbreak of the novel coronavirus, COVID-19, which originated in Wuhan, China and quickly spread throughout the world. On March 2, 2020, Governor Mills convened a coronavirus response team, and by March 24, she ordered all non essential businesses in Maine to close their physical locations, a shutdown that lasted through the end of May. From face masks, social distancing, and diligent disinfection to companies embracing work-from-home strategies, folks seemed to get used to the “new normal.”

As we head into 2021, COVID-fatigue has set in and infection rates are surging again. However, there is reason for optimism. Operation Warp Speed began distributing approved vaccines to priority groups in December 2020. The conventional wisdom is most adults will have access to a vaccine as early as springtime.

In the meantime, we have elected a new president, but there is no decisive answer on which political party will control the senate, as of this writing. We will not know the answer until early January 2021. Depending on which party holds power, we will see either a continuation or changes to trade policy, taxation, discretionary spending, housing, education, healthcare, and government regulation—all of which will impact commercial real estate.

President-elect Biden’s 10-year plan calls for $5.4 trillion of additional spending. Expanded health care coverage could drive demand for medical office space. Increased spending for infrastructure and R&D could drive demand for office, industrial and logistics real estate. Federal housing policy changes will create opportunities for residential real estate developers. However, if the popular 1031 tax-free exchange program is eliminated, this will negatively impact the demand for investment real estate.


Analyzing CBRE’s US Capital Markets publication through Q3 of 2020, we saw that total capital markets investment volume in 2020 was less than half of prepandemic averages since 2015. However, investment activity has been steadily improving since the reopening of the economy. Some key points include:

  • Hotel sector had the largest year-over-year decrease in investment volume,
    followed by retail.
  • Multi-family had the smallest decrease in investment volume.
  • Cap rates were stable during 2020. However, cap rates are less meaningful than
    usual given the limited number of transactions compared to pre-COVID levels. This is attributed to a disconnect between buyer and seller pricing expectations.
  • According to CBRE’s Cap Rate Survey for 2020, 61% of buyers are seeking discounts while only 9% of sellers are willing to offer them.
  • Interest rates have remained at all-time lows during 2020, which has spurred
    increased refinancing activity. Low rates are expected to continue in 2021. However, given the uncertainty over rental income from some asset classes, not all deals are finding acceptable capital.
  • To date, distressed sales have been very limited.
  • Most sectors experienced negative price appreciation, with industrial being the only sector with higher appreciation. Price appreciation will rebound in 2021, assuming the influence of COVID is behind us and interest rates remain low, and the 1031 exchange remains in place.
  • Investor liquidity remains high.
  • Construction pricing remains high with no reductions in sight.


Given the savory ingredients of abundant liquidity, low cost of capital, wider yield spreads and rebounding asset value appreciation, we expect the appetite, among investors, to acquire more commercial real estate to return to the insatiable pre-COVID levels in 2021, albeit with some sectors faring better than others.

Local Trends:

Traditionally, Maine has been a stable market, somewhat resistant to the volatility the rest of the country experiences. Provided employment statistics return to pre-COVID normal, and capital is available, we expect increased demand for investment property statewide in 2021. While interest rates have decreased over 2020, cap rates were essentially unchanged in most markets and sectors. Industrial and multifamily buildings continue to trade in the lowest cap rate range.

While we saw a period during the early days of COVID where lenders paused, long-term fixed debt and historically low rates have been available during Q3 and Q4 of 2020. There continues to be a steady mix of out-of-state capital and local buyers demanding product throughout the State of Maine. We have also seen a high level of interest in mixed retail-industrial properties that we expect to continue post-COVID.














The Boulos Company facilitated more than $191 million in transactions on behalf of clients in 2020. Over $102.5 million of that volume represents investment transactions. The industrial sector, alone, accounted for 50% of the total sale transactions volume at over $51.3 million.

In conclusion, there will be more availability of investment product in 2021 than this past year to satisfy demand. After we muddle through a turbulent first quarter, we expect robust activity in the second quarter of 2021 onwards, as we put the pandemic and the election behind us, and investors capitalize on late-cycle market dynamics. The Boulos Company looks forward to working with you to develop and execute your real estate strategy in 2021.


Download The Full Market Outlook



Contact Chris today:


Chris Paszyc, CCIM, SIOR Partner & Broker

One Canal Plaza, Suite 500, Portland, ME 04101
M: 207.772.1333   D: 207.553.1709