Commercial Real Estate in the Age of Coronavirus: Investor Sentiment Update by PwC

Last week PricewaterhouseCoopers published a special update to their quarterly Real Estate Investor Survey, looking at the impact of the COVID-19 pandemic on commercial real estate, specifically the retail, office, industrial and apartment sectors of the market. The results reflect considerable uncertainty in the market, but not surprisingly vary by property sector.

With much of the economy shut down, the retail sector is the most negative, with 100% of respondents indicating that retail fundamentals have been adversely affected, and high percentages of investors stating that tenants are seeking rent relief. It is possible that many small retailers will not survive this crisis, which may be a catalyst for further growth in e-commerce, and a cloudy future for many retail properties.

The office sector also reports that fundamentals either have been affected (nearly 80%) or will be within six months, with over 50% of tenants seeking rent relief, even as many office workers transition to remote work. There is some uncertainty as to whether remote work might dampen future demand for office space.

Distress is also reported in the apartment sector, as 100% of respondents to the survey indicate that apartment fundamentals have been or will be affected within the next three months. A minority of tenants have so far requested rent relief, but it is expected that at least 50% will eventually seek relief, as many have been furloughed, lost their jobs, or had their hours reduced. Local laws protecting tenants from eviction are a wild card that will likely have at least a short-term impact on some properties.

Industrial warehouse properties have a less negative perception, as 50% of respondents suggest no negative impact from the current crisis, even though a small percentage of tenants have sought rent relief. The importance of the domestic and global supply chain is positive, particularly for warehouse properties, although the impact on other property types in the industrial sector is less certain.

One constant among all four property sectors is that investors overwhelmingly believe that the U.S. economy has entered a recession, or will by the beginning of summer. Another important takeaway is that equity and debt capital will be scarce over the near term, as the markets retrench to let the dust settle.

The well-known quote – may you live in interesting times – has never been more apropos.