Several large brokerage firms have predicted a downward trend in overall real estate from 5% to 25% in the near term. This is across the board in all sectors. In the longer term, lease renewals and occupancy rates are expected to take a downward turn. However, we see a slightly different view, one of more optimism. Yes, Senior housing and Hospitality will be hit the hardest with hotels predicting occupancy down in the unprecedented range of about 35% occupancy. During the 2008 financial crisis, occupancy was quoted at around 60%.
This is followed by the decline in non-credit retail and restaurant spaces, skipping rent payments and increasing vacancy of the near term. Government assistance is in the process of helping small business across the country and individual stimulus checks. Restaurant supporters across the country are doing their best to support local restaurants through carry out and delivery. With the lifting of the stay at home orders and the reopening of restaurants, seating may be different with less table and chairs to support social distancing.
Multifamily apartments have been reported as showing a decline in rent collections with surveys taking place of apartment owners primarily in larger cities. As unemployment declines and the overall economy reopens the credit loss number should decline.
Office space in the short term is expected to be down about 10% due to credit losses and social distancing measure throughout the country. Office space should recover in the long term due to the expansion of the square footage of space per employee back to historic 240 square feet per employee, that in the past several years been decreased to 190 to 200 square feet per employee.
Industrial space is quoted at being the least effected market with most production being essential in the market. Auto manufactures remain closed but will be returning to operation soon. Production in Europe is expected to resume on May 4th for Ford Motor company. Fiat Chrysler also expects to return to production on May 4th at the current time. This shows a return to work and mortgage and rent payments capable of being made.
As appraisers and valuation experts we see the reminder of the first half of 2020 as downturn in the market. The second have however should return to normal and require increased demand for valuation services. All the pending deals and hesitancy in the market should slowly start to happen with cap rates that remain low and steady as well as historic low interest rates in the market. We don’t believe deals are dead, just delayed. We look forward to a strong Second half of 2020 and beyond.
A Quote from Federal Reserve Chairman Jerome Powell sums up the opportunities when the economy reopens
“When the spread of the virus is under control, businesses will reopen and people will come back to work. There is every reason to believe that the economic rebound, when it comes, can be robust.”
Vice President, Commercial Operations
The William Fall Group