When we started The Registry thirteen years ago, we set out to create a media enterprise that relies on the collective knowledge of the industry professionals to help us understand the dynamics of commercial real estate. This also helps us in our daily reporting, and it remains one of the pillars of our strategy.
The last recession, a decade ago, was tremendously taxing for the industry, and our ability to tap into different people across the real estate spectrum gave us a better sense of how the industry was coping and recovering. The new coronavirus has the potential to be very disruptive, so we wanted to understand how our readers saw this risk exhibiting itself throughout the commercial real estate market. Earlier this week, we asked that single question, and we received the following results from our readers in the Bay Area and Puget Sound. The answers below are a sample of the responses.
The bad news:
- Devastating, only the tip of the iceberg
- Permitting at cities is grinding to a halt. This already exacerbates an existing crisis of providing housing to the market.
- We received our first job activity suspension today due to the virus
- Slow down in near term leasing
- Near term significant impact with many businesses closing their offices for many weeks
- I think project meetings and construction sites might have to shut down temporarily if the situation gets worse.
- Existing deals are being completed, but we aren’t showing much new space.
- We design hundreds of commercial buildings in the region, efficiencies of our clients (architects) and fellow consultants having 25% of staff working from home (25% now, a number that will likely increase) is starting to affect the ability to meet deadlines which will likely push permits out and delay projects.
- My small business commercial high-end tenants are all suffering. 2 of 12 are asking for rent relief. Customer traffic is way down. Maybe 50%
- The first impact for commercial lending is ‘putting the brakes’ on hotel lending
- Getting blunt questions from lender credit underwriters in regard to the virus, about properties such as the shared workspace product one of my clients owns, a client who owns 5 movie theaters, and additional] questions regarding the potential loss of attendance revenue. Hotels are off the list for loans right now due to the temporary lower occupancy rates, and there appears to be a lower amount of potential new apartment tenants out previewing some of our various clients’ properties currently in lease-up mode.
- Retail tenants are asking for rent abatement due to lost business. But too early to tell the big impacts
- The panic in the market will put tenants on the defensive. They will try to re-trade term sheets in anticipation of a recession looming. Rental rates will decline, tenants will shrink and pull back from expansion plans. More subleases will reach the market. Tenants will reconsider short-term options versus committing to long-term leases.
- For anyone who has tenants who depend on people being at work (restaurants, bars, event spaces, retail), they will not be able to pay rent, as their income declines rapidly and for months. They will also lay off employees, which will then further impact the economy. This will have an adverse effect on many real estate holdings. Landlords will have to decide which tenants to support and for how long. The longer the panic and health hazards exist, the greater the impact
- We will see a minimum of a 60 to a 90-day delay in any new tenant market activity and current early-stage work and activity will pause for the same period of time beginning early next week. Any commitments made now will delay construction start until mid-year
- It will slow down inventory on the market, and investors will move away from value-add investments.
- Spas, gyms, salons and cafes are all going to have a few slow months. Marginal operators will close and default on leases, trickling down to landlords. Replacement tenants will be very hard to find. The retail category takes another big hit. Investors will avoid it even more than they do presently.
- Everyone will make less money, retail will be hammered, office rents will decline, and industrial and multifamily will likely be the only resilient sectors.
The not so bad news:
- Low interest rates are attracting investors.
- Caution on moving forward. No hard stops on any deals so far
- I think this will have a short term impact. This should resolve once we are able to contain the virus.
- I don’t see it having any long term effects on the overall value and availability of the different sectors of commercial real estate here in the N.W.
- It will slow the deal flow down but in the long term will not have a negative impact on the industry.
- Concerned about job losses creating higher vacancy in apartments
- 90 days of wheels halting on major sales and leases. GDP will go negative for the second quarter. Values drop some but not tremendous amount unless bad virus numbers continue through summer. Then major resetting. Most assume (hope) it will fade in summer
- Long term, should not affect industrial or office. Short term, requirements will be on hold. Some retail related to the hospitality and entertainment industry might be at risk if they hold a lot of debt and cannot weather the storm. Hopefully, this will be a U correction once the virus starts to subside in the United States.
- It will have a significant negative effect overall, though it will likely prove to be slightly overblown. There will be a recessionary performance for 2 to 4 quarters.
- Hospitality will be hit hard for 6 months, then recovery
- Temporary disruption. Minor to lightly moderate impact in 2020. Return to normal in 2021
- Stalls many capital market deals; leasing deals slow but recovery faster
- This is a major disruption for uses that depend on daily traffic – restaurants, hotels, parking. For restaurants with thin profit margins, this will be enough to push them to close. Otherwise, it should be a 30 to 60 to 90-day short term disruption.
- The hotel industry has been and will continue to be significantly disrupted until there is clarity on business and leisure travel. Student housing will see a near term shock given the cancellation of classes, although I foresee this being more short term as kids will not stop going to college. Overall office and industrial demand should rebound quickly pending the length of severity of the virus, work from home orders, travel restrictions, and stock market volatility.
- I think the virus will last about 3 months and then wane. It will come back next year in a smaller way. Small businesses will be hurt most. The Alaska cruise ship tourism industry will be devastated this year. Alaska Airlines & Boeing & Expedia will have layoffs. The software industry should be relatively OK but will not expand as fast. Amazon, Microsoft, Facebook, Google, Twitter, etc. are not likely to experience dramatic pullbacks but given the recent upswing we’ve had, it will feel chilly. Not sure I’d want to be opening a condo tower at the moment although rates will be low for buyers.
- I think that by mid-April we’ll know how the USA is being impacted. By then, we’ll also know if Europe & Asia have been shut down. My guess is that we’ll be impacted locally for 4-6 months, then things will slowly get back to “normal.”
- I see everything slowing down, if not halting altogether in the short term. Folks will want to shore up their assets with the question mark of the big unknown looming. As prices fall, some folks will swoop in to scoop things up at very low price points
- I think that many sellers will take their houses off the market or will wait before listing their homes. As a result, this will create an inventory shortage combined with the low rates that might cause prices to move up sharply
- Somewhat unknown, at most a brief period of less activity…..More of a social issue than a business issue…..But social issues can be a distraction to business….Will not affect the need for space and expansion…..
Longer-term impact:
- This is a test case for remote working. If productivity isn’t impacted by employees working remotely, more companies may decide they don’t need the physical footprint they currently have and shed surplus space. If the current coronavirus created “stay at home remote work program” many companies have implemented these past two weeks fails, we shouldn’t see any “workplace strategy” related reductions in footprint as employees are forced back to their places of employment.
- GAFA (the big four) and other mature business enterprises will give more employees and teams the ability to work from home even after we have moved through this careful but herd mentality reaction. This will allow smaller more agile companies to pick off appropriate real estate near the big four holdings. This summer/fall should be exciting.
- Companies may find that more workers can do their job remotely and as a result let less space
- Once employers and management realize how much can be done remotely the old model of central offices will decline. The virus will be the spark for the remote model across industries.
- Long term: will likely have an accelerating effect on supply chain changes, remote office-ing, online shopping, decline in theater attendance and other social changes. May revert to the mean eventually, but will take some time. CRE will perform more evenly than the equity markets and as such may actually attract more capital in the long term.
