The pandemic has stirred fears in the commercial real estate market about the long-term impacts on the commercial real estate market. While most experts agree that the economic recovery will begin once the social distancing restrictions are lifted, the event could catalyze cultural changes in the way that people use real estate, whether that means working from home or shopping more online. However, CREXi’s Eli Randel says that any changes will be short lived.
“I think there will be short-term impacts and there is definitely a virtual and tech awakening which I think the industry is embracing, but I don’t think this pandemic will change the fundamental core function of commercial real estate,” Randel, chief strategy officer, tells GlobeSt.com. “I assume, much like post 9/11, we will be smarter about how to prevent and react to another similar circumstance that may arise, but the benefits of the asset class remain and a glut of liquidity in the market will still be highly attracted to CRE especially in light of stock-market volatility.”
In the near term, hospitality and office will see the biggest hit as a result of the pandemic. “Hospitality as an asset type will be affected in the near-term given travel restrictions and I believe a newfound open-mindedness to virtual work space will impact office, but both will recover and remain,” says Randel. “For better or worse we have short memories and we will move on. Retails, logistics, and industrial property types have fundamentally changed with e-commerce which has perhaps been highlighted during these unprecedented times, but I believe those changes predate the coronavirus and the property types remain highly valuable albeit different than they once were.”
As a result, investment and investment strategy will be impacted, particularly in those asset classes. “There will be some pricing corrections for certain property classes in certain markets, but I think over time normalcy will return. Leases, insurance requirements, loan documents, and safety requirements may begin to look a little different as a result of coronavirus, but I do not think commercial real estate will be fundamentally impacted from an investment or strategic standpoint. In terms of investment vehicles, I believe commercial real estate remains superior to all or most alternatives,” says Randel.
Small businesses are going to be hurt the hardest, and the same is true for smaller investors. “Despite government intervention and relief efforts designed to help more entrepreneurial and smaller players, I believe institutional players are better equipped to weather the current storm,” says Randel. “Typically they maintain greater capital reserves, have more diversification, and have more bargaining leverage with tenants and lenders. That said, there are plenty of savvy smaller operators who have plenty of equity in their property and will not only survive but will prosper when normalcy returns.”