How will the coronavirus disease (COVID-19) impact the commercial real estate sector?
It’s hard to tell with a situation that is changing so rapidly on a daily basis, so it is important to remain attentive to government guidelines, directives, laws and orders (whether issued by the CDC or other federal, state or local health authorities).
A more severe spread of the disease could cause factory closings, businesses shut down, and a more damaging impact on economic activity. Service businesses, including hotels, regional malls, airlines, restaurants and movie theaters will feel the hardest impact.
Points to Consider: The Impact of the Coronavirus on the Commercial Real Estate Sector
The coronavirus outbreak is a major concern for commercial landlords and tenants the same.
As many small businesses are impacted it could cause concern for many commercial landlords that the tenants may not be able to pay their lease.
Additionally, what are the costs and consequences of a tenant or landlord deciding to close the shut down the premises as a result of the virus?
Another consideration is cost impact of extra cleaning and building maintenance.
The Stock Market
The stock market has been very volatile however U.S. markets surged after the Federal Reserve announced plans to launch a special fund to keep credit flowing during the coronavirus scare, with the Dow at a multi-year low spiking more than 1,100 points in midday trading before giving up more than half its gains.
If there is a bright side, it may be favorable interest rates which, in turn, make commercial real estate financing more affordable. Mass stock market sell-offs generate a load of proceeds that must be invested.
The Colliers International report noted construction costs could surge as contractors must switch to more expensive American steel rather than importing steel from China.
Building supplies are already dwindling, as shipments from China are down at least 25 percent. The lack of materials could result in significant project delays and cost escalations for developments that have not yet broken ground.
We Will Have to Wait and See
Only time will tell how the coronavirus will impact the commercial real estate market. No doubt, the American economy will be impacted to some degree, but we won’t know to what extent any time soon.
The real question is, is there a chance that with a continued spread of the coronavirus the U.S. economy will move into full-blown recession? Only time will tell.
As we navigate this ever-changing landscape, please refer to the following resources from our trade organizations to offer additional insight.
- Moody’s Economics – The Moody’s Corporation is making research data and analysisrelated to the economic impact of COVID-19 available to the public, free of charge, via a dedicated website. This resource will be updated on a regular basis and collects insights from across the company’s deep network of financial experts. Information provided by Moody’s will help our clients to better understand the financial implications of market disruptions caused by both a short- and long-term health care crisis.
- NMHC – The National Multifamily Housing Council is actively working with The White House, Congress and CDC to make the most relevant policy guidance available to members of the multifamily industry. The NMHC has also made this guideavailable to members of the apartment industry to help develop and implement preparedness strategies for responding to the evolving coronavirus threat.
- MBA – The Mortgage Banking Association has launched a resource pageto support members of the industry in responding to and preparing for the impacts of COVID-19.