As the COVID-19 escalated to a global pandemic, different businesses and markets have been hit worldwide. In these times of uncertainties, it is inevitable that real estate investors would respond accordingly—something we wonder what’s waiting for us this 2020.
The impact of the coronavirus on the financial market has been so sudden. Nobody was ready for it. In fear of the markets falling, investors have diverted their capital reserves to the relatively resilient bond market. This resulted in the largest drop in the stock market in just a matter of one week since the financial crisis in 2008. Since 1987, the Dow experienced the biggest crash.
Based on the recent history of pandemics the world has seen—such as
SARS, MERS, H1N1 and others—experts are using the experience to foresee the
market volatility and how long and far the correction for the market will take.
It may still be too early to compare the full impact of COVID-19, but during
the previous pandemics, the markets have already stabilized in the span of
three to six months on average.
With the current government’s thrust to prevent further spread of the
virus—which includes stay-at-home order and isolation—the real estate markets
have been undeniably impacted. Prior to the scare, the supply and demand are in
good balance. It is only fitting to assume that, so long as the virus is
contained the shortest time possible, economic growth will remain positive. It
may slow down, or even have a decline, but it will thrive. In theory, for the
rest of the year, the real estate markets will be relatively stable.
Among the real estate markets, the hospitality and tourism industry are
the ones to be impacted the most as tourists have cancelled their vacations, so
were the conferences, and other big events, have all been put on hold. Last
year, the nationwide occupancy rate reached a record high at 66.2% and though
the virus will certainly affect its performance, experts still expect it to
settle at 62.5% which is still higher than the average occupancy rate in the
last 30 years.
Another market that will also experience poor performance, at least for
the short term, is the retail sector, especially the ones related to
experiential retail—restaurants, entertainment centers, fitness gyms and other
similar businesses and stores. People are advised to stay at-home and avoid
public places and crowds and these are what caused the backlash.
The demand will still remain high for the housing market in the midst of
coronavirus and the rental businesses will still be favorable. The vacancy
rates of the multifamily properties closed 2019 at 4.2%. The construction of
new Class A units may raise that rate higher this year, but diminutive vacancy
rates in Class B and C will most likely result in rent growth.
The office sector ended at a 13.0 percent vacancy average rate
nationwide and we don’t expect much deviation from that. As long as job
creation is steady and the labor market stays tight, the impact on this sector
is minuscule.
The industrial sector will also be affected in the short term. There
will be inevitable decline, if not a total halt, in the flow of goods from
other other countries specially from China—this may lead to a little risk as
some users may put on hold their pans to utilize for large warehouse spaces as
they gauge the situation.
While the headlines about COVID-19 are currently overwhelming, its detrimental effects are unlikely to cause a long-lasting severe impact on the commercial real estate market. The drop in the interest rates will fuel refinance and acquisition activity and quality investors have managed to lock in debt in the 3% range despite the increasing spread of lenders’ risk-free rates. Investment activity should also remain stable in spite of the lack of confidence in the economy as a whole since property values are not escalating and cap rates are not crashing.
These assessments are heavily based on the previous pandemics we have
experienced plus the current situation of the coronavirus. But things could
drastically change like say for example if the consumer confidence levels drop
significantly or the market volatility becomes out of control, it’ll be a
different situation. But for now, we are expecting to see reduced economic
growth but still positive and thriving amid this current health scare.
As for the real estate market, if anyone wants to sell their house, they might think this a bad time for that. However, there are private investors like Mrs Property Solutions who still operate even at this time of crisis. They want to help out people who needs cash for houses Los Angeles. They buy house in as is condition and in any situation.
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