Commercial Real Estate Impact and Opportunities Amidst a Global Pandemic

Topics: Commercial Real Estate

by Colin Cosgrove

The August 2020 jobs report significantly exceeded expectations, with large increases in leisure, hospitality and retail employment opportunities adding credibility for a “V”-shaped recovery from the COVID-19 pandemic. However, this optimistic view is dimmed by the recent spike in cases and reinstated economic shutdowns across many states.


While the commercial real estate industry has been highly affected by COVID-19, primarily due to the necessary actions taken to temporarily close non-essential businesses, property prices have seen some stabilization and opportunities still exist in a range of sectors. In April 2020, 42 states issued stay-at-home orders and temporarily shut down businesses, resulting in more than 316 million people working and eating at home.1 In March and April 2020, the effects of the coronavirus pandemic and efforts to contain it resulted in more than 22.2 million people unemployed in the two months combined.2 While the labor market took a sharp decline in March and April, there have been recent improvements, reflecting the continued resumption of economic activity in the United States. In August, the unemployment rate declined by 1.4 percentage points to 8.4 percent, as the United States economy added 1.37 million jobs. However, the continued rate of job creation is uncertain due to a recent increase in COVID-19 infections, causing state authorities to reconsider reopening plans and creating renewed uncertainty for many businesses and consumers.3

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Even with so much still unknown, the fiscal stimulus has provided tremendous support to the struggling U.S. economy and has helped consumers continue spending. Since March, Congress has authorized $3.3 trillion in new spending to help combat the impact of coronavirus shutdowns, including stimulus checks to American households and emergency loans and grants to struggling businesses and state and local governments. Personal and corporate income tax payments were also delayed until July 15, 2020 in an effort to keep more cash in Americans’ wallets.4

The fundamentals of commercial real estate going into 2020 were strong and well-positioned for the short- to mid-term disruption we are facing today. As the effects of the pandemic are being felt across the globe, the length and ultimate magnitude of its consequences are uncertain and multiple aspects of the economy, including commercial real estate, are expected to be affected.

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Sources:
1New York Times. See Which States and Cities Have Told Residents to Stay at Home. April 7, 2020
2US. Bureau of Labor Statistics. The Employment Situation - June 2020.
3https://www.wsj.com/articles/coronavirus-spending-pushed-u-s-june-budget-gap-to-864-billion-treasury-says-11594663634
4https://www.wsj.com/articles/coronavirus-spending-pushed-u-s-june-budget-gap-to-864-billion-treasury-says-11594663634
5https://www.bls.gov/web/empsit/ceshighlights.pdf
6Moody’s Analytics. COVID-19 and Distress in CMBS Markets. June 9, 2020.
7CBRE Flash Call: COVID-19 Impact on Commercial Real Estate. March 18, 2020.
8JLL Position Paper. Industrial real estate demand on the rise in the U.S. Summer 2020.
9Yardi Matrix. COVID-19: A Game Changer for Multifamily. July 2020.
10https://www.bloomberg.com/news/articles/2020-06-09/as-many-as-25-000-u-s-stores-may-close-in-2020-mostly-in-malls?sref=naHaKvP1
11https://www.nytimes.com/2020/06/16/business/may-retail-sales.html
12https://www.usatoday.com/story/money/2020/07/13/jobs-home-more-people-telecommute-office-market-could-shrivel/5410812002/
13https://www.usatoday.com/story/money/2020/07/13/jobs-home-more-people-telecommute-office-market-could-shrivel/5410812002/
14Commercial Mortgage Alert. July 24, 2020.
15https://www.greenstreetadvisors.com/insights/CPPI


Disclosure
The views expressed herein are subject to change based upon economic, real estate and other market conditions. These views should not be relied upon for investment advice. Any forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Important Risk Factors to Consider
Investments in commercial real estate assets are subject to varying degrees of risk and are relatively illiquid. Several factors may adversely affect the financial condition, operating results and value of real estate assets. These factors include, but are not limited to:
  • changes in national, regional and local economic conditions, such as inflation and interest rate fluctuations;
  • local property supply and demand conditions;
  • ability to collect rent from tenants;
  • vacancies or ability to lease on favorable terms;
  • increases in operating costs, including insurance premiums, utilities and real estate taxes;
  • federal, state or local laws and regulations;
  • changing market demographics;
  • the impact of an epidemic in the areas in which properties are located or a pandemic, which could severely disrupt the global economy;
  • changes in availability and costs of financing;
  • and acts of nature, such as hurricanes, earthquakes, tornadoes or floods