Use caution in inferring COVID-19's impact on commercial real estate

Historically, pandemic outbreaks generate short-term market instability to move to stabilization in the following three to six months

By
Western Investor
March 23, 2020





covid 19 coronavirus graph economy

The COVID-19 virus has had a significant effect on the stock market and halved the price of oil over the past month, but it is premature to draw strong inferences about the virus’ impact on the commercial real estate sector.

Historically, pandemic outbreaks generate short-term market instability to move to stabilization in the following three to six months. 

Also, stock markets and oil prices are much more susceptible to shocks such as the dispute between Russia and Saudi Arabia-led OPEC nations.

The first quarter of the year is typically the weakest for commercial real estate metrics, so drawing conclusions about the impact of COVID-19 must be done carefully, according to reports from Avison Young, Cushman & Wakefield and Marcus & Millichap.

The recent lowering of already low interest rates should support consumer activity, which may result in increased momentum across some real estate sectors in Canada.

Demand for owner-occupied industrial product is also likely to accelerate against this backdrop, with any pause in office and/or leasing activity temporary. Supply chain disruptions could affect logistics centres and warehousing.

As in other global regions, Canadian hospitality and retail sectors are dependent on Chinese tourism and/or supply chains, and so are liable to experience near-term disruption.

COVID-19 will likely affect the North American retail supply chain as early as April, mostly due to slowing imports from China. Dollar stores, consumer electronics, toys and the apparel categories all face potential disruption in the supply chain if the crisis drags on. If a substantial number of people working from home or on a more flexible basis becomes permanent, it may have long-term impacts on office leasing, Avison Young noted.

Courtesy: Avison Young, Cushman & Wakefield, Marcus & Millichap


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