The coronavirus outbreak will accelerate trends that had been forming in commercial real estate (CRE) and cause dramatic changes in the industry faster than had been anticipated. The crisis will result in some short-term contractions in the industry, but will lead to a long-term expansion for commercial real estate generally, particularly in the industrial and warehouse sector.
During a special webinar last week, Dr. Timothy Savage of New York University, and a research economist for NAIOP, updated his outlook on demand for industrial, office and retail commercial real estate in light the coronavirus.
“Commercial real estate was faced with technological disruption before this crisis,” said Savage. “This crisis is more of a natural disaster than a financial crisis; the significance of which is that on the other side of it, the fundamentals will be the same, they have just been moved further along the continuum.”
These trends, according to Savage, affect all sectors:
Industrial: Prior to the crisis, the NAIOP Research Foundation had revised its projections for industrial demand upward in a report entitled, The NAIOP Industrial Space Demand Forecast. It had forecast decreased demand into mid-2021 due to a lagging supply of available space and economic uncertainty but a fairly quick rebound to robust levels similar to those seen in early 2019.
Those levels may now be reached sooner, as people have come to rely on delivery-based goods for more everyday living items.
“These wide-ranging economic factors all support increased demand for industrial real estate. The long-term economic effects of the coronavirus are of course unknown, but we see a strong underpinning of the global economy, including low interest rates, the ever-increasing amount of online commerce and a demand for faster delivery of goods,” said Thomas J. Bisacquino, president and CEO of NAIOP.
“Industrial real estate is at the epicenter of automation and e-commerce distribution and stands to benefit from this transformation we are going through,” said Savage.
Office: The office sector will be driven more quickly by changing work pattens that will favour decentralized work, co-working and short term leases, even in Class A spaces.
Retail: The converse of the industrial real estate expansion will be a continued decrease in brick and mortar retail, specifically small and independently owned business. Some retailers, especially those that were born online, will continue to have marquee locations for branding and customer service purposes, but this area will continue to decline overall.
Hospitality will be significantly negatively impacted, but will bounce back quickly.