It is predicted investors will shift their attention to multifamily properties and real estate that supports e-commerce distribution chains.
As New Hampshire non-essential businesses shut down to contain the spread of the new coronavirus, the retail and hospitality sectors are expected to bear the brunt of the short-term effects.
“The market is telling us what we would expect: any type of real estate that depends on daily human interaction is getting hit the hardest,” said Kevin Thorpe, chief economist for Cushman & Wakefield, in a recent teleconference. “Hotels and retail and the most impacted right away.”
Major hotel chains have shut down hundreds of locations nationwide, and approximately 3,000 collateralized mortgage-based securities loans backed by hotel properties totaling over $86 billion are at stake, debt researchers Trepp Inc. reported.
The effects of the pandemic are likely to vary widely by geographic market, American Realty Advisors predicted in a market commentary this week. Industrial markets that rely heavily on imports could see a downturn, but demand for e-commerce could benefit warehouse and distribution markets that were already thriving before the outbreak.
Many researchers and economists predict that the multifamily market will remain a safe harbor throughout the crisis. Doug Harmon, chairman of capital markets for Cushman & Wakefield, said workforce housing landlords could benefit, particularly if large portions of the U.S. workforce lose their jobs.
Every Asset Class Affected
Commercial real estate executives predict other property types, such as logistics and workforce housing, could provide investors with safe harbors in a time of unprecedented upheaval.
Transactions are taking a pause across the board as investors wait to assess the effects of supply chain disruption and shelter-in-place orders that have temporarily shuttered vast swaths of the U.S. economy.
“The fattest part of the bell curve is pause, stall, wait and see, let’s assess,” Harmon said in a recent teleconference. “Every asset class has been affected.”
The length of the crisis and ability of real estate markets to recover could hinge on fundamentals prior to the quarters, which were considered healthy in most U.S. markets and largely free of overbuilding and excessive leverage. The 2008-2009 financial crisis stretched over 18 months, and central banks were slow to take decisive action, Thorpe noted.
“Central banks and governments learned a lot from the great financial crisis, learned that time is of the essence and they need to go big and go fast. There is a template to execute on these measures,” he said.
The greatest effects of the current shutdown could be concentrated in the second quarter, Thorpe said. Even so, the U.S. could be hit with the steepest one-quarter decline in gross domestic product since the Great Depression, he predicted.
The impacts on the office market will be slower to be felt, because 91 percent of all leases run or two years or longer, said Carlo Barel di Sant’Albano, chief executive of capital markets and investor services for Cushman & Wakefield.
“Typically, the commercial real estate market enters a downturn overbuilt. That’s not really the situation here,” he said.
Shift to Defensive Assets
Brokerage JLL predicts that investors will shift to defensive assets, particularly multifamily properties, and said in a report this week that gains in e-commerce could increase demand for logistics properties. The outbreak is likely to prompt industrial and logistics users to accelerate the use of robotics, according to the report by 10 JLL economists and researchers.
New Hampshire’s industrial real estate market ended 2019 with 95.12 percent occupancy rates and average rents of $6.70 per square foot, triple net, according to research by Colliers International. In Southeast New Hampshire’s critical warehouse and distribution sector, only the Nashua and Salem areas had vacancy rates above 3 percent, at 16.52 percent and 10.33 percent, respectively. Triple-net rents were highest in Portsmouth and Salem, at $9.56 and $7.88, respectively.
The year also saw several high-dollar-value sales of multifamily properties in and around Manchester.
But the long-term effects will be felt for years and could lead to permanent structural changes in society and how real estate is used, ranging from increasing reliance on remote working and online grocery shopping to de-globalization of supply chains, JLL predicts.
