SIOR experts weigh solid economic drivers against unclear future.
This article originally appeared on GlobeSt.com.
SEATTLE & PITTSBURGH—While CRE pros face a lot of unknowns right now during the coronavirus pandemic, they can rely on strong experience, teamwork and market fundamentals. GlobeSt.com reached out to SIOR VP Patricia Loveall, partner and EVP of Kidder Mathews in Seattle, and SIOR president-elect Patrick Sentner, EVP at CBRE in Pittsburgh, to discuss CRE performance and prognostications for various markets and sectors in these troubling economic times.
“The immediate impact I see right now is the complete and utter unknown,” said Sentner, “with a whole spectrum of my clients literally not knowing what to do at this point, nor what they’ll be doing in 30 or 60 or 90 days. Our fundamentals are still extremely strong, but right now we have companies that did not in a million years think they could survive with employees working from home.”
Loveall also asserts that economic drivers are still solid in Seattle, which suggest a good probability of a rebound once the pandemic passes. However, the office and retail sectors have taken a big hit.
“The biggest challenge for most companies is ‘How can we pay rent? How can we get rent relief?’” she said. “That’s what the developers and the investors are having to deal with, too. From that the question becomes ‘What are the real values on real estate today? What’s going to be the hit on cap rates? How much are values going down and what’s going to rebound?’ So it’s that uncertainty.”
Not surprisingly, the fog of such an unprecedented global disruption has led to delays, renegotiations and outright cancellations in the investment sector with loan-to-values decreasing and review periods increasing. Economic tremors can wreak havoc for due diligence departments. In fact, one prospective buyer recently walked away from a deal with $20 million of nonrefundable earnest money left on the table.
Loveall did point to several “shining stars” during this coronavirus shakeup, those property types that are faring well due to their mission-critical or daily needs focus or facilitation. Think medical supplies and equipment, grocery stores, e-commerce and reverse logistics. Then there are already shaky sectors that don’t exactly adhere to social distancing practices.
“We do believe that coworking space done right can fill a really strong need in our market, but it’s no longer going to be with very dense, open collaboration areas,” Sentner said. “The operators are going to have to revamp not only the layout but also what the type of furniture they use. People are not going to feel comfortable with the old setup; they’re going to start freaking out when somebody sneezes.”
The economy is accustomed to taking its proverbial medicine every down cycle. The COVID-19 pandemic presents new challenges, however. There will be winners and losers and lots of evolving, from office footprint modification to retail adaptive reuse and full-on property conversions. That means opportunity, too.
“A time of crisis spurs innovation,” Loveall said. “We’re a resilient people and we’re going to find a way to reutilize real estate and jobs and see the future like we’ve never done before. In the next few months to come, you’re going to see some amazing ideas that will revolutionize the way we work, the way we think and the way we interact.”