Coronavirus and Commercial Real Estate
A look at coronavirus impacts by each asset class
As many industries are being affected by the novel coronavirus, I want to expand on how the virus is affecting the commercial real estate industry specifically, by looking at each asset class individually.
Travel and Hospitality
Let’s start with the travel and hospitality asset class. With travel restrictions in place, many Americans have canceled nonessential travel plans, such as spring break trips and personal vacations. While the airline, cruise, and transportation industries are seeing widespread cancellations, we are also seeing unprecedented amounts of hotel and lodging cancellations. Vacation rentals, offered through services such as Air B & B and VRBO, are also seeing a major drop in bookings and higher requests for cancellations. Property owners of vacations rentals will have to provide significant discounts to get customers in their units.
The office asset class is seeing a slowdown in new leasing. Several companies are choosing to hold off on expanding into additional space at this time. Many employers are encouraging their employees to work from home and are reassessing the best work environment amidst a public health crisis. This may start the future of much higher rates of telecommuting and change the office space as we once knew it.
Retail will continue to see a slowdown as stores take necessary precautions of social distancing and experience challenges with their supply chain. Retail stores that focus on consumer staples, such as Costco and national branded grocery stores, are doing well, if fact those retailers are hiring new employees to stay on top of the high demand of products. On the contrary, the discretionary consumer retail stores, such as restaurants, gyms, and hair salons, are experiencing closures.
While multifamily has often been considered “recession proof,” the coronavirus will be a major test. Higher end rentals will likely see a heightened rate of vacancy, while market rate and workforce housing will remain insulated from a market slowdown. The sense of home has never been more important, as families and friends are being asked to shelter in place. As college campuses around the nation close their buildings, switch to an online platform, and encourage students to not come back after spring break, it is likely that the multifamily real estate owners will experience loss of rental income as students choose to stay home.
How to prepare?
KC Conway, Chief Economist at the CCIM Institute, expands on what commercial real estate professionals, investors, brokers, and landlords can do to prepare for this ever-changing market.
First, communication is key. Don’t sit back and wait for things to correct themselves. Be assertive and talk to your tenants, lenders, and property managers.
Secondly, KC recommends that you think strategically. This is a great time to review your lease agreements for cancelation clause, reevaluate your line of credit, and credit facilities.
Lastly, KC encourages commercial real estate professionals stay agile, and not to rely on hope, but rather plan for the future.
For more from KC Conway, see his full podcast here.
We are all in this together
While we anticipate and try to prepare for challenges ahead, it is important to remain positive and recognize that we are all in this together. As our local, state, and federal governments work hard to find solutions to the COVID-19 pandemic, let’s remember that the private sector and industry plays a big role in our recovery. Let’s remain prudent and we will get through this. Stay safe out there!
As always, feel free to reach out to discuss your commercial real estate holdings or to discuss any questions or concerns you may have amid this coronavirus crisis.