Retail and the capital markets are most impacted in Phoenix by the coronavirus pandemic. Retail is, of course, hard hit across the country due to mandated store closures, and widening spreads and tightening lending has also impacted overall investment activity in the market.
“While we await more data to determine impacts at the institutional real estate level, the biggest impacts observed thus far have been relegated to capital markets and retail,” Thomas Brophy, national director of research and analytics for multifamily investments at Colliers International, tells GlobeSt.com. “Obviously, the most impacted asset class to date has been retail with nearly all restaurant/store front operations impacted by the various measures taken by government officials to reduce the spread of the outbreak. While retail’s disruption started well in advance of the Corona Virus outbreak, it will most likely accelerate the transition to industrial/distribution.”
The capital markets is the less discussed impacted sector, and in Phoenix, it could impact investment activity overall. “With regards to capital markets lenders have been widening spreads, which has, in turn, impacted interest rates,” says Brophy. “While most of the spread increase can, and should, be attributed to the near-term volatility of the virus’ spread and government steps to contain it; lenders are also responding, in part, to the potential impact of delinquent rent and potential vacancies affecting cash flow across all asset types.”
Multifamily, on the other hand, is well positioned to withstand the recession, even with the significant job losses. “Multifamily was, and still is, undersupplied at both the metro and city levels,” explains Brophy. “While construction continues on projects already in the pipeline, we do anticipate there to be some delay in the funding/starting of projects, which commenced at the beginning of the outbreak. Despite this delay, and given federal government’s recently passed stimulus package and the Federal Reserve’s market interventions, should prove limited once we fully emerge from the emergency measures which were put in place earlier in the month.”
In the near term, there will certainly be challenges, but the asset class remains well positioned to out perform others in this market. “While near-term rent delinquencies can be a cause for concern, particularly of renter by necessity properties lenders such as Fannie/Freddie have instituted forbearance options to halt evictions and the Fed continues to keep markets liquid,” says Brophy. “As such, we have not observed owners significantly lowering their rents; rather, more are working with their current tenants or, if in lease-up, offer up-front concessions to preemptively mitigate any potential downside. As a result, multifamily will continue to be a preferred investor asset class over the medium-to-long term despite significant short-term headwinds.”