cancellations due to concerns surrounding COVID- 19, and therefore, we areunlikely to achieve our first quarter andfull-year 2020 outlook,” said CEO Jon E.Bortz at the time of the announcement.“These cancellations, which have dramatically escalated in just the last 10 days,are largely for business previously on thebooks for March, April and May of 2020.”Retail will also likely feel an impact ifpeople start to stay away from malls.
Much will also depend on what corrective measures the US federal andlocal governments will take. China’smassive quarantine is credited with slowing the spread of the novel virus andItaly has put the entire country intolockdown in order to slow the spread.
But such steps—even if they are moderate measures—come with an economic price. Unemployment, for example, could rise as businesses andconsumers practice social distancing tostay safe. “Once unemployment starts tonotch higher, that’s when recessionbecomes a real threat,” Moody’sAnalytics chief economist Mark Zanditold reporters.
“Analysis of previous epidemics suggests that reduced mobility within thepopulation has a greater economicimpact than the illness itself,” AvisonYoung noted in a recent report.
“On balance, it seems likelythat extending the length ofthe outbreak to reduce itsseverity will have at leastsome impact on investment transaction volumesfor 2020,” it said.
Leasing activity too willlikely to see a decline in transaction volumes compared withpre-crisis expectations. Transactions currently under consideration could well bedelayed rather than cancelled, AvisonYoung said, and some deals will inevitablybe withdrawn. “Fewer new transactionswill be initiated, and some expansionplans will be put on hold.” —Erika Morphy
A comprehensive look at what’s trending in the world of commercial real estate
In February the US economy added 273,000 jobs in February—a numberthat surpassed the 175,000 jobs economists surveyed by Dow Jones hadexpected. Ordinarily the report wouldhave been met with satisfaction from thebusiness community, a sign that thelong-standing economic expansion wascontinuing. But these are no ordinarydays. Economic activity in February provides little insight into how the economywill progress in the near-term amid theuncertainty of the coronavirus. Thestock market met the news with indifference, continuing its rout.
Instead, talk is growing that chances fora recession in the near-term are increasing.Oxford Economics, for example, is nowpredicting a 35% chance of a recessionoccurring in the US this year, up from anestimate of 25% it made in early January.
Another indication came from Pacific
Investment Management Co (PIMCO),
which told clients the coronavirus out-
break is likely to cause a technical reces-
sion, or two consecutive quarters of
negative growth, in the US and the euro
zone during the first half of 2020.
How the commercial real estate indus-
try will fare in a coronavirus-led downturn
remains to be seen. “It really depends on
how bad the coronavirus gets,” CoStar
consultant Joey Biasi says. “If it is relatively
short-lived it won’t have much of an
impact. But if it drags down the economy
we could see some knock-on effects.”
Some sectors are more vulner-
able than others, Biasi contin-
ues, with hotels particularly in
the cross-hairs. Pebblebrook
Hotel Trust, to name one
example, announced that it
has withdrawn its outlook for
the first quarter and the year due
to the large number of recent corpo-
rate group cancellations and corporate
travel policy restrictions related to con-
cerns about the coronavirus, which have
led to material declines in net bookings
year over year.
“We have seen a considerable rise incorporate group- and convention-related
How CRE Will Fare in theCoronavirus Pandemic