These are my notes based on reading and listening to many people in the brokerage community and from financial institutions, as well as looking at US Conference Board statistics. There is no fear-mongering in these notes and there is no upselling of any product. It is what I hope to be a level-headed review and balanced opinions. By no means are all of these my thoughts or analysis, but rather consolidated paraphrasing.
Commercial Real Estate Market
The impact on the real estate market assumes there will be further spread of the virus across and within countries, but that the outbreak will be contained before it causes extreme economic disruption. Short term, this is a painful experience, but everyone in politics acted swiftly enough to create policy support that favors a recovery and creates a positive outlook in the medium term.
If the virus is contained and mitigated through the current precautions then its material impact on the broader economy could be diminished, without having impacts on the property as well. However, it’s still too early to tell the long-term effects.
Impact on Economy
Please take any and all economic forecasts with a grain of salt because we’re flying blind with no real data as we just entered this situation. The quarantines in place are stalling time lengths plus samples of data, and making it very hard to make accurate economic forecasts if you understand statistics and regression analysis, and a byproduct is that the quarantines might actually speed up the time we get out of this, and then provide us more real data.
If compared to past outbreaks, then this should largely be contained in the next quarter and a lot of people are saying it will bring a strong rebound in markets in the second half of the year.
The global economy was gathering momentum until March, and you can see those figures in the employment rates and leading economic indices. Adding in the government stimulus that is now being prepared, markets could be looking at a rebound as pent-up demand is created and credit flows more freely.
This event will weigh on our economy in Q120 statistics due to weaker exports, the negative effects on retail, hospitality & tourism, and supply chain shortfalls, but we still have low unemployment and relatively strong consumption levels that should prove beneficial if allowed to come back sooner than later.
Impact on Business
Disruptions in business activity are permeating through upstream and downstream channels and will slow growth in the short-term, but a rebound is becoming clear, albeit the delay in that rebound is the focal point. There is a clear uncertainty and risk to some businesses to delay investment or expansion plans, but demand for real estate investing remains high, with capital and liquidity still present in the market. Its just that the lending process has become a little tougher during this immediate reaction.
Longer term, the innovative changes that we all will put in place due to this health and social scare will push forward some efficiencies that have already been gaining ground in the market and business society, including shifting our supply chains to be less dependent on overseas needs and having more inventory on hand, leveraging “remote worker” practices, and the apparent growth and move to e-commerce as people work and buy online from home.
We were all looking for a reason for the prolonged recovery to feel some headwinds, and our scapegoat is now apparent, so the quicker we get out of this means a much improved year from a forecasting perspective and what the effects of this pent-up demand could do to GDP next year.
The confidence in that statement, from many professionals, comes from what we see in China now that life is getting back to normal over there and the precautions are taking their effect. Even the progress in the healthcare community is welcoming, and that is finding and researching new and old drugs that have been effective for other viruses and need time to work through clinicals.
We all have to remember to do the right thing and make the right decision. There aren’t always rules to follow and in today’s crisis more than ever searching for rules that dont exist only creates analysis paralysis.
Stay Safe Out There
Pandemics are not new to the world. There is a process to follow in order to contain them. That is what we’re going through now, except the precautions are shocking. This too will pass. It might not be this next week or two months from now, but give it time to work through the system, and educate yourself on what to look out for and heed the precautionary measures for a couple weeks. Keep the elderly indoors, clean your surfaces, wash your hands and keep your distance. If we are disciplined and smart it will be okay.