When Will Commercial Real Estate Recover?
As many parts of the world reemerge from the COVID-19 pandemic and the distress it caused, we share the widespread hope and positive sentiment that a full turnaround is in progress. Yet our enthusiasm remains tempered in some real estate sectors where a complete recovery may take significant time.
“Our real estate and turnaround teams are ready to support our clients with our array of specialized services and expertise ranging from workouts to receivership, development and legacy asset advisory,” says Douglas Wilson Companies Chairman and CEO Douglas Wilson.
While no one knows exactly how and when widespread vaccinations will shape a full global recovery, DWC is drawing from industry research to help gauge what may occur in the months to come with respect to multifamily, hospitality, office and senior housing sectors. Our teams are keeping a close watch on the following areas and outlooks:
Multifamily: Recovery is near.
Multifamily fared better than most of its real estate counterparts. The vacancy rate was relatively steady over the course of 2020, with global real estate leader CBRE forecasting a return to pre-COVID vacancy levels in early 2022 and demand rising in early 2021.
Hospitality: Mixed factors driving segment-specific recovery.
With hotels and resorts experiencing the steepest declines in occupancy and operating income during the pandemic, some hospitality segments are seeing a boomerang recovery as vaccination counts continue to tick up. Pent-up demand is driving a boom in leisure travel, with resorts and extended-stay operators well under way in their recovery. Convention center hotels and those primarily geared toward business travel will be slowest to recover, with overall figures from hotel data provider STR showing occupancy of 57% in April for the entire sector — a far cry from the bottom of 22% in April 2020 but with much still to be gained.
Senior Housing: Recovery timeline uncertain.
Senior housing occupancy was still falling in Q1, reaching a new low occupancy level of 78.8%, according to the latest data from the National Investment Center for Seniors Housing and Care. With move-ins delayed and the senior population most impacted by the pandemic’s health effects, the first quarter marked the sixth consecutive quarterly decline in occupancy across the sector, with NIC economists looking toward the next two quarters to signal when a possible recovery will take shape.
Office: Longest recovery expected with some permanent change.
With many corporations making work-from-home a permanent fixture post pandemic, the sector is not expected to return to its pre-pandemic vacancy rates until 2025, according to global commercial real estate firm Cushman and Wakefield. Globally, vacancy will rise to 15.6% in Q2 2022, according to the firm’s outlook, versus 10.9% pre-pandemic. Despite the impact of the pandemics, however, the reopening of event venues and large-scale events planned for late 2021 bode well for businesses that are allowing vaccinated employees to return to the office.
Further, the office space of the future is expected to require rethinking for smaller footprints and more fit-for-purpose designs, according to an outlook from McKinsey & Company published in 2020. Workspaces will need to consider the types of work being done in offices that cannot be done remotely, and there will likely be a strong emphasis on IT infrastructure to support virtual collaborations, videoconferencing and more.
DWC is tracking all sectors closely and stands ready to assist with our real estate advisory team, led by company Vice President Michele Vives.
“With the recovery so far being uneven across sectors, we are seeing many scenarios presenting upside for real estate owners to repurpose and reposition their assets,” Vives says. “It’s a unique opportunity in the midst of an unusual turnaround.”
We stand ready to support our existing and new clients with efficient and best-in-class business remedies for distressed real estate assets. For additional information please contact Douglas Wilson at 619-906-4312.