A CBRE April commercial real estate report threw a wet towel on any V-shaped recovery expectations. In the report, CBRE doesn’t expect CRE growth to return until 2021 and staggered sector growth coming some 12 to 30 months later, with hospitality taking the longest to recover.
A month after CBRE’s report came out, Richard Barkham, chief global economist and head of Americas Research, said in a more optimistic view that he does expect a V-shaped recovery for the economy. But he also contemplates the possibility of higher volatility due to the impact of COVID-19 going forward.
CRE’s Elongated Recovery
Barkham said he expects CRE’s recovery to be more elongated and resemble that of a Nike Swoosh. Going through the various CRE sectors and starting with industrial, CBRE expects it to recover within a year, helped along by a strong e-commerce sector.
Multifamily is expected to recover in about 1.5 years, although its recovery could be quicker because of dropping rents. Barkham notes that a positive for this sector is that people will be wanting to start families, looking for places to live, and generally get on with their lives.
CBRE is looking at two years for offices to recover. The longer recovery is needed to adapt to the new wellness reality. Offices will need to establish new protocols and management methods before any new leases are inked. Some examples that Barkham provides are changes to the HVAC system and furniture, such as pieces that are better for deep cleaning. Considering janitorial services, the cost of running an office will probably experience an increase.
As for retail, Barkham sees a three-year recovery and believes a number of food and beverage businesses won’t be coming back. This leaves a fairly large gap in the sector, which Barkham believes will be filled by new businesses.
With the decrease in international travel, Barkham says money may shift into retail and into auto sales. This shift is due to pent-up demand for international travel being redirected to auto sales.
To “V” Or Not To “V”
Many economists have moved away from talk of a V-shaped recovery. It was originally believed that the large amounts of government stimulus and pent-up demand might lead to a quick recovery. Now those talks are fading, and economic numbers are beginning to provide a longer but clearer recovery estimate.
Barkham isn’t as gloomy. He points to China’s recovery as a potential example for the U.S. China implemented very strict lockdowns for two months. After one quarter into the pandemic, it’s seeing a turnaround.
Barkham mentions the 1973 oil shock as part of his analysis, mainly due to its high volatility. He draws parallels with 911 as well. Back then, people talked about never going back into a high rise building. Now the discussions are about never going back into offices. Barkham believes it's too early to really know how people will view offices, but in the interim (18-24 months), he sees social distancing and a reduction in density as the current trend.
Another parallel that Barkham draws is to the 1918 Spanish flu, which killed around 65 million people globally and 650,000 in the U.S. Despite those catastrophic numbers, Barkham points out that right after the Spanish Flu came the roaring 20s, ushering in an age of prosperity and consumer exuberance. He says lockdowns will have the opposite effect on people — as lockdowns fade from people’s minds, and the pandemic fear factor decreases with both being replaced by flamboyant small consumption.
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