The Recent History of CRE vs. the Post-Pandemic Outlook
At the beginning of the year, we discussed the trends for commercial real estate and reviewed the 2020 outlook for healthcare real estate. At the time, we were riding out a record-breaking expansion cycle with excitement for the future of CRE. But it’s no secret that since that time, a dramatic shift has changed the course of CRE for the immediate future.
Within the last few months, businesses have closed. Commercial tenants have defaulted on rent. Landlords are facing impending vacancies. COVID-19 has touched numerous industries, widely affecting business as usual. As a result, investors, landlords, and tenants of commercial real estate (CRE) are rethinking strategies.
As the worst of the virus begins to taper off, we are beginning to see the scope of its impact. While there is not an exact end date for COVID-19, there are several predictions about the post-pandemic state of CRE. Experts are beginning to weigh in on what is to come for commercial property owners.
The Office and Retail Sectors
As of the beginning of May 2020, the office sector had experienced a 70% decrease in leasing volume as compared to February. But fortunately, according to Starwood Capital Group, 95% of tenants in the office sector paid their rent in April. However, only 20%-40% of non-grocery retailers paid their April rent (varying heavily by type of retailer). It’s a difficult landscape for both of these sectors.
For the immediate future, both sectors are developing strategies to reopen their physical workplaces and stores. Their plans include safety measures for employees and customers. Naturally, the hope is for business growth that will yield more cash flow, lessening the strain on their bottom lines.
The Multifamily Sector
Significant job loss across the country has given multifamily CRE investors reason for concern. However, the National Multifamily Housing Council recently conducted a survey of over 11.5 million units, yielding positive results. According to their survey, 84% of renters paid a portion, if not all, of their rent in April. A survey for the Chicagoland area is also producing promising projections for May. Future projections will depend on the state of the economy and the job market.
The Industrial Sector
CoStar’s senior economist in Chicago, Abby Corbett, explains that new consumer habits may benefit the industrial sector. The rising use of eCommerce is creating a demand for industrial space. For example, companies like Target and Amazon both recently signed substantial leases. However, the industrial sector is not a safe sector for all investors.
Bisnow suggests that investors who own fewer industrial properties with older assets may be at risk. Losing one or two of their tenants during this time could place a significant strain on their portfolio. While the industrial sector seems largely unscathed, much of its outcome hangs in the balance of an uneasy economy.
The Medical Sector
While the medical sector is typically a niche market, it has been the center of attention over the last few months. Medical space was already in demand, but COVID-19 stretched available space to the limits. Many facilities adapted to treat patients in new ways, and new spaces were constructed.
While the news of crowded hospitals filled the media, many other medical facilities temporarily closed their doors. Elective procedures and treatments were unavailable throughout much of the country. Because of this, many landlords and tenants are in the midst of negotiations for rent relief. Even newly built facilities have pushed back their scheduled opening dates.
While this year has produced many challenges, it has also provided opportunities to be optimistic and creatively resilient. The current economic position is revealing new approaches to how the post-pandemic CRE industry can function. As the saying goes, “hindsight is 20/20,” and 2020 is sure to offer deeper insights for commercial investors, landlords, and tenants.
If you are interested in learning more about investing in commercial real estate, or if you have questions about buying, selling, or leasing a commercial property, please contact an HBRE advisor. Our team of experienced CRE professionals have the skills and insight to assist with all property transactions. To reach out to us directly, email [email protected] or call 615-564-4133.
