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In the space of just a few weeks the outlook for the US commercial real estate sector, to say nothing of the overall economy, has been utterly upended. Research firms are adjusting their initial expectations that the coronavirus would leave just a glancing blow on the industry.

A new report from CBRE finds that the US is in recession with GDP declines expected in the first and second quarter. It forecasts that the economy will stabilize in the third quarter, start to recover in the fourth, and grow at more than 5% in 2021 due to pent-up demand and major government stimulus.

The US commercial real estate recovery will trail the economic rebound and span 12 to 30 months, depending on the sector, it said, with categories like industrial and logistics recovering within the year, and multifamily over 18 months. Retail, food and beverage and the hotel sector are facing a longer recovery of up to 30 months.

There will be no quick fix in the real estate industry, says Richard Barkham, global chief economist and head of Americas Research. "It will take several years for vacancy rates to fall back to their pre-crisis levels."

The experiences in China do provide some hope for the industry, Barkham adds. "We already are seeing signs of recovery in China's real estate market. Office-leasing inquiries in China are on the uptick, site-inspection volumes in Shanghai are back to 70% of pre-outbreak levels, and demand from tech companies for office space has been resilient."

The short-term, though, will not be pretty. CBRE foresees unemployment rising to above 11% by mid-year, registering a net loss of as many as 14 million jobs. The capital markets are still functioning but transaction volumes have declined materially. Repricing asks and transactions falling out of contract have both increased, CBRE reports. Here is what it thinks will play out on a sector-by-sector basis.

Office

Office leasing has slowed, vacancy is rising, and sublease space is expected to come back to the market quickly, according to CBRE. The good news is that office properties and office-using employment remain relatively insulated compared to other property types. More severe impacts will come in markets with a high concentration of oil and gas and travel and leisure jobs. Also, there is less new office construction in this cycle, which will help limit rental falls.

Hotels

CBRE projects that hotel revenue will decline by an average of 46% for 2020, with a modest recovery beginning in the second half of 2020. All hotels will feel the pain, but the greatest impact will be in gateway cities with substantial tourism and convention business. Thousands of hotels are closing, and many may be converted to uses as medical and quarantine facilities.

Retail

The retail industry has taken particularly hard hits from COVID-19 containment efforts, which have resulted in thousands of nonessential store closures, CBRE said. Grocery and pharmacy, and by extension the retail centers that house them, are the most resilient categories as customers shift spending almost entirely to essential goods and core basics both online and in-store. Many retailers are seeking rent relief, but each situation is unique to the specific terms of each retailer's lease. Missed rent payments will continue through May.

Industrial and Logistics

This category will see a short-term slowdown in leasing and a moderate increase in vacancies because of a large amount of new construction, CBRE said. The sector will be a net, long-term beneficiary due to strong e-commerce growth and retailers focusing more on inventory control in a post-COVID-19 consumption environment.

Multifamily

Multifamily housing is experiencing moderate deterioration of property fundamentals. Renters need a place to live, but job losses and resulting economic hardship is challenging the ability of many households to pay rent.

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