Industry researchers respond to the crisis and take a look at what’s on the horizon.
The COVID-19 pandemic is having a greater impact on commercial real estate than the global financial crisis of earlier in this century. That was a credit and liquidity crisis. The pandemic directly impacts the demand for space through quarantines, social distancing, shutdowns, supply chain disruptions, employment loss and a shattering of consumer confidence, according to real estate economic and research experts who spoke with Development magazine.
CRE and the overall economy will rebound, according to those interviewed. However, the speed with which the country and the industry emerge from the crisis depends on the ability to ramp up virus testing, development of a vaccine, patience with social distancing, the magnitude of monetary stimulus, and the relative health of the CRE property types, markets and individual projects.
Development: How will commercial real estate emerge from this pandemic?
Maria Sicola: CRE emerges from this pandemic looking different than it did before the emergency. Industries, regions and property types will recover at different speeds. Services such as property management, space design, construction, appraisal and analytics will become increasingly important. Brokerage will take a back seat to consultative advice and strategic planning.
Spencer Levy: The recovery will come in three phases — today, tomorrow and the distant future. Today, we are closely tracking rent collections in the top five asset classes — industrial, office, multifamily, retail and hospitality. The good news is that they are better than we expected in the office, industrial and multifamily, which are tracking at about 90% in rent collections. Retail is under-performing at around 20% to 40%. Tomorrow, which is likely to last for six to nine months, the assets will be reopened and will likely be reopened in phases, but further outbreaks could prompt local shutdowns. The distant future will find that the office will look a lot like it did in the pre-COVID-19 period, but with enhanced wellness features.
John Chang: The global health crisis poses a set of unique challenges and burdens on both the economy and real estate properties. Each property type faces unique challenges — some very severe, like the hotel sector, and some more mild, such as self-storage properties. All will face hurdles in the recovery process, and some may experience a substantive change, driven by new behaviors adopted during people’s stay-at-home/work-from-home time. It’s too early to assemble a clear picture of the ultimate outcome.