As many states start decreasing regulations, it is hard to know how things will change in the coming days. The COVID-19 pandemic is one of the most unexpected challenges that has hit our country in a long time. Fortunately, the country is resilient and ready to come back better than ever.
At the height of the outbreak, both the Federal Reserve and the federal government took immediate action using unprecedented monetary and fiscal stimulus responses. The entire nation banded together and did their part to respond in the best way they could. Businesses closed their doors, and employees adapted to the stay-at-home working style.
American economists are already noting that while severe, the economic downturn of 2020 will be the shortest in history. Lindsey Piegza, Chief Economist at Stifel Fixed Income, told reporters, “Because there were so many forecasts talking about a total collapse of the economy, the numbers we’re seeing, while extremely bad, aren’t the worst-case scenario. It’s not as bad as it could have been. It’s an odd silver lining.”
On a global scale, central banks have already decreased interest rates and injected billions of dollars of liquidity into the financial markets. All of these efforts will do wonders as businesses start getting back to their feet.
But what about the commercial real estate market? Let’s look at what you can expect in the upcoming days.
What Things Looked Like in Commercial Real Estate Pre-Outbreak
At the end of 2019, things in commercial real estate were looking up. In a study conducted by Deloitte Insights, 76% of respondents had an optimistic outlook on commercial real estate performance over the next 18 months. The study also found that the United States was on solid footing and would attract capital throughout the year.
The NAIOP Commercial Real Estate (CRE) Sentiment Index even indicated an uptick in attitudes and general conditions concerning the industry in October of last year. Other highlights of the survey include:
- Respondents predicted increases during the next year in occupancy rates, face, and effective rents, along with steadily available equity and debt financing for their own projects.
- Over half of respondents indicated that face and effective rents increasing during the next 12 months. With readings for both face rents and effective rents remaining in solidly positive territory, it appears that respondents anticipate property rental income should grow modestly over the next year.
- Also, for the first time, a higher percentage of respondents expected first-year cap rates are to be lower (associated with a higher value) 12 months from now. This change in the response direction may align with recently lower interest rates.
As you can see from the reports, the overall attitude in the commercial real estate industry included a positive outlook on the upcoming months. Then, COVID-19 struck, and things rapidly changed.
How COVID-19 Impacted Commercial Real Estate in the Early Days
When the pandemic first started impacting the United States, no one knew what to do. Those in the commercial real estate industry did their best to try to react. Unfortunately, some businesses were forced to lay off and furlough their employees, while others found ways of continuing work with employees working remotely.
While businesses tried to adapt to the government mandates to socially distance and work from home, not everyone could pay their bills. According to the National Multifamily Housing Council, merely 69% of U.S. households had paid their rent by April 5. That is a significant decrease when you compare that number to 81% of households paid by March 5 and the 82% paid by the same time last year.
Some economists feared the worse and told Americans to gear up for a market crash similar to that in 2008. Others didn’t know what to expect. For example, Legg Mason wrote in their market outlook report in late-March:
“U.S. commercial real estate (CRE) is not immune to the fallout from the COVID-19 outbreak. Some sectors, such as hotels and retail properties, will take a hard hit immediately, while others have long-term lease protection that should support long-term stability. If the outbreak peaks over the next few months, the impact on CRE could be less severe. Conversely, if the outbreak lasts much longer or spreads more widely, large job losses and substantial cutbacks on spending would substantially affect demand for commercial space.”
Luckily, the commercial real estate market didn’t take a deep dive for long during the outbreak. Some secondary markets, like those in Utah, continued holding steady. These slight differences hint at where things will grow once things pick back up again.
What to Expect in Commercial Real Estate Looking Forward
While the situation continues to unfold, there are some positives we can expect over the next few months as the economy opens back up, and workers return to business. Consumers are itching to do their part bringing the economy back up to its former standards.
Fortunately for those people, Utah is starting to open back up with the proper restrictions in place, and other states have followed suit. You will notice that there might be a lag for a few months as the industrial industry moves forward, but there will eventually be a major boom as a result of these efforts.
If you are looking to get into the market, now is the time. Investors are buying commercial real estate property at a great value. But not just in Utah, all over the country, as well.
A Dallas-based real estate investor and developer Champion Partners that bought and sold buildings coming out of the Great Recession for substantial profits is now gearing up to do the same.
Champion Partners’ Steve Modory told The Philadelphia Inquirer, “We do anticipate being very aggressive this year as this disruption is likely to provide some excellent investment opportunities for those that have access to capital and can move quickly,”
The right opportunities could present themselves to you within the next few weeks. If so, our real estate experts recommend acting fast. These prices won’t last as the economy starts turning around just as quickly as it fell.
Get the advice you need to make the right choices by contacting the real estate brokers at Woodley Real Estate. Woodley Real Estate is a full-service commercial and residential real estate firm in Utah with a dedicated team of professionals who work collaboratively across disciplines to bring together market-validated perspectives, experience, and expertise. Contact us today to learn more.
