March 27, 2020 – “Our analysis of data from the worldwide and local real estate markets demonstrates that the debt and structured finance market likely bottomed out last week and we are now experiencing an upswing,” explained Spencer Levy, CBRE Chairman of Americas Research and Senior Economic Advisor during a NAIOP Maryland-sponsored webinar broadcasted yesterday. “The short-term shock we are now experiencing will result in a tremendous bounce back beginning in the third quarter and accelerating through 2021. The world gets it, as recent market deterioration has resulted in a massive and unified global response in the form of financial stimulus packages, and I believe more help is on the way.”
Levy has studied the recovery period from major events
occurring throughout the world, including SARS in Asia, the technology bubble
and the 9/11 tragedy.
“Our studies with past events show a two-year peak-to-trough
timeline with full value not returning for four years, but we believe the
environment is more favorable now,” Levy said.
“With no fundamental flaw in the economy, we’re going to bounce back a
lot faster than people think… The federal government [will provide] businesses
with a soft landing, followed by further rocket-fuel later this year to
accelerate the recovery.”
Providing a dose of realism, Levy provided some sobering facts but focused on his optimistic viewpoint for all asset classes. “We are predicting a negative 20% US GDP in the second quarter and a negative 3% for the entire year, with the unemployment rate spiking to over 6%,” Levy said. “But this will be countered by our prediction of a 6% GDP growth in 2021 due to pent-up demand across all market sectors and the stimulus lift provided by the federal government. The most recent package will allow businesses to keep their payrolls flowing and help companies pay rent for the next three months.”
“China essentially shut down its country in late January but
is now 85% up and running,” he added. “As soon as this is over in the United
States, which we expect to be no later than June 1, restaurants will again be
packed and people will quickly return to retail stores and office buildings.
There will not be a secular shift that will cause long-term negative impact to
any real estate class.”
Levy explained that approximately 50% of the hotel industry
is now shut down but expects occupancy to “be on par with a return to normalcy
in about six months.” He indicates that the retail environment is “very bad,
especially in malls,” but counters that with strong performances among
grocery-anchored shopping centers currently. “Certain supermarkets that were
grossing $1 million per week are now achieving that per day.”
He notices some cracks in the industrial category as related
to shipping and breakdowns in the supply chain, that will quickly be remedied.
“There remain tremendous opportunities in last-mile delivery and cold storage.
We envision no lasting negatively in the office sector with a spike in leasing
activity in the fourth quarter.”
Levy dismisses those that predict dramatic changes in the
way businesses and consumers interact with real estate.
“Working from home is doable, but the office environment
makes people happy and more productive. The coworking concept is also here to
stay but, in both situations, you may see changes to interior office designs
that provide for more spacing between employees and cleaner air circulation
systems. The student and senior housing markets are facing current challenges
but have bright futures,” he adds.
With conversations about rent abatement a likely scenario in the coming months, Levy recommends that landlords and tenants “have the conversation now and be open and honest. One promising aspect we are witnessing is the collaborative efforts among landlords, tenants and the government to find solutions that will enable everyone to emerge stronger from all of this. Adversity does not build character, it reveals it,” he concluded.
Resources from the webinar: