|Just the Peaks
This newsletter, at a glance
Once coronavirus concerns fade, which asset classes will bounce back?
Learn which commercial sectors have the straightest path to recovery
Over the past month, Americans have slowly but surely come out of quarantine hiding. Striving for a sense of normalcy, increasingly more people are visiting grocery stores, pharmacies, restaurants, and doctors’ offices. They’re also returning to work, even when it means riding an elevator. But with some states still on strict lockdown, questions remain.
Once the pandemic is over, which asset classes will rebound the fastest? Which sectors will face significant hurdles? And even if state and local governments say we’re ‘free,’ will consumers feel comfortable seeking goods and services?
Economists are fairly confident we will see a number of areas return to normal in just a few short months. However, some unfortunate asset classes could need years to recover.
The path of least resistance
In an interview with Bisnow, Walker & Dunlop CEO Willy Walker predicted that many assets will ‘snap back’ to full use post-pandemic. In a matter of months, expect to see healthcare make a near-immediate recovery with patients returning to routine office visits, elective surgeries, diagnostic screenings, and other services temporarily paused due to coronavirus. From there, the healthcare field will set off a powerful ripple effect.
“It creates a virtuous cycle in the economy,” says Professor Peter Linneman, CRE economist. “As patients come back for elective procedures, they need something to eat, so the restaurants next to the hospital do well, and that means food supply chains do better, and on you go.”
Now that we’re learning more about the nature of the virus and its spread, experts say outdoor entertainment will also see a major comeback. While cinemas, theaters, museums, arcades, kid zones, and other indoor venues will face significant barriers, open-air locales like zoos, boardwalks, and amusement parks will flourish.
Clearly, the difference is the setting.
Researchers believe the single greatest factor determining which assets will recoup quickest is personal safety. At the current moment, it’s hard to tell if consumers are staying away from certain services and entertainment because of state and federal mandates, or simply out of fear. Once the government reopens businesses, we’ll have a more accurate sense of what people are comfortable with.
Outside of real estate, there are a few areas performing spectacularly. Check out which ‘defensive sectors’ are confirmed to be doing well.
Which industries thrive during a recession?
Home staples – Regardless of the economy, people always need food, cleaning supplies, medicine, and other everyday goods
Spotlight stocks: Costco (COST), BJs (BJ), Dollar General (DG)
Technology – With everyone working from home, tech devices, software, and cellular networks are more coveted than ever
Spotlight stocks: Apple (AAPL), Microsoft (MSFT), Zoom (ZM)
Utilities – Whether it’s water, electricity, telecom, or energy (for upcoming hot summer months), utility demands remain stable
Spotlight stocks: Vistra Energy Corp. (VST), NextEra Energy (NEE)
For more investment insights, visit U.S. News & World Report
What about the rest of CRE?
Since COVID-19 first landed in the states, most investors have remained upbeat about long-term office leases. Unlike short-term rentals, landlords have continued to successfully collect rent per their existing agreements. However, it’s important to consider what could happen down the line. Months and years from now, companies may want spaces with different layouts, larger elevators, and other social distancing-friendly designs.
Despite new attitudes toward confined spaces, experts like Linneman are confident that suburban and urban offices will prosper. “Cities are cities. They’ll continue to perform well.”
Multifamily occupancy rates should also stay consistent. As long as President Trump’s stimulus money continues to flow, unemployed and furloughed workers can keep their homes. Not to mention, new construction has significantly slowed, helping to mitigate competition among owners. Rent collections were also up in the month of May after a blip at the beginning of the pandemic.
As we wait to see the fate of America’s many CRE sectors, we ask our partners: are you ready for the new normal?
Everest says: we’re already past the peak