ULI Tampa Bay proudly partnered with fellow district councils from around the state to host our recent ULI Florida Members-Only Webinar: Reassessing Florida’s Real Estate and Economic Outlook.

Keynote speaker Spencer Levy of CBRE examined the impacts of COVID-19 on the macro economy, specific asset classes, key operational issues, and more. Following Spencer’s keynote address, Greg West, CEO of ZOM Living posed key questions about the impact of COVID-19 on Florida’s real estate industry and what the future may hold.

Access the full recording through this members-only link (log in required). Hear about the anticipated shape of the economic recovery; which of Florida’s asset classes will recover the quickest; where the industry will see distress and opportunity; lessons learned from prior crises; where we may see secular shifts within the real estate industry; and more. 

Here are some of Spencer’s quick takes from the webinar. Read the full transcript for context and more detail.

The Near Term

“Facts of where the economy is going in the near term are well-known. Second quarter GDP forecasts from CBRE and our peers on Wall Street are all terribly negative. The CBRE second-quarter GDP forecast for the United States is somewhere in the negative 25% range. Morgan Stanley, Goldman and JPMorgan have forecasted as far down as negative 40%.”

The Shape of the Recovery

“CBRE believes we are in fact in a V shaped recovery. We believe, notwithstanding how challenging the 2nd quarter is going to be, there will be a rapid rebound beginning in the 3rd quarter, accelerating into the 4th and into 2021… From a macro perspective, we believe we will bounce back quickly because of the federal stimulus and what comps (from prior crises) help illustrate”

“Notwithstanding our optimism for a “V shape” recovery on a macro level, we are not as optimistic about as quick of a recovery in the real estate industry. If you want to understand a shape in your mind, expect more of a Nike shape (somewhere between a U and V shaped recovery).”

Recovery by Asset Class

“If you track the collections and the mega-trends – industrial and multifamily, followed by office will bounce back quicker than retail and hotels.”

Industrial:

“Industrial has been the net beneficiary of just about every megatrend for the last 20 years, and it is led by ecommerce. Things are now likely to accelerate”

Hotel:

“I just looked at the forecast for our hotel demand in the United States in 2020 and we believe that it’s going to be down by 40% for the year. The second quarter down by over 60%. The good news is it’s going to start to improve in the third and fourth quarter.” ”2020 is going to be rough. It’s going to be disproportionately rough for people that are dependent upon travel, tourism, retail, and restaurants, but it’s going to bounce back quicker than people think starting in 2021.”

Retail:

“In terms of retail, we think it will come back slower. The tragedy of retail is that there’s going to be some percentage of retailers, notably restaurants, that will never recover. Based upon a call we had the other day with our Restaurant Group, we believe that the number of restaurants that may never return could approach 20%.”

“For the last ten years we have heard the narrative that bricks-and-mortar retail is dead. And now some folks are saying they are never going back to a bar or restaurant.” [I counter with this anecdote]. My colleagues in Hong Kong say today there are already lines of people outside of luxury goods stores and restaurants, a phenomenon that is being termed “revenge retail”. There is pent up demand. We are likely to see a surge of people going back to retail places immediately after the doors are reopened.”

Office:

“Post COVID-19, people will return to the office for the same fundamental reasons as before (productivity, happiness, attracting/retaining talent); however, the office sector may change in the following ways:

• Likely to see a less dense office space. The average square footage per employee has gotten tighter and tighter for the last ten years. We may see the pendulum swing back as people desire more physical separation between one another. This could make the demand for office space go up, not down.
• Upgraded HVAC and other air cleanliness systems, not dissimilar to what you might see in a medical office building. We aren’t going to see surgical level cleanliness in the office environment, but we will see a cleaner environment in both the physical structure (HVAC, etc.) and through other means.”

Housing:

“The government has thrown the proverbial kitchen sink at this and we think that collections will stay strong in multifamily in May. Albeit May is going to be weaker than April. It will hit some of the workforce housing and lower rungs harder because a disproportionate amount of the job loss we are seeing has been in the service industries.  Regrettably, Florida has a disproportionate number of people working in those service industries, so your rent may be hit just a little bit harder on a local basis than they might get hit on a national basis.”… ”The good news is in 2020 CBRE …sees vacancy increasing by a couple hundred basis points, but starting to bounce back in the fourth quarter. For rents, we have seen objective evidence of decline in 2020, but they will start to bounce back in the first quarter of 2021. Multi-family is not immune, but they are a story of resilience as compared to the other asset types. Multi-family will bounce back first, followed by industrial, and then office.”

“Single family home price decreases are going to be a bigger long-term threat to the senior housing industry than Covid-19 itself.  People don’t just move into senior housing because they get older; they move into these types of places because they have equity built up in their homes. If that is retarded, then that is going to retard their demand for these places as well. That’s the bad news, the good news is this may also retard new development in the senior housing space. Demographic trends in the USA are so strong for the senior housing space that, while it may take a longer while to recover in the short term (more than any other housing sector), it will recover. It will be very strong in the intermediate term because the demographic demand for this housing isn’t going to change … it is only going to get better.”

New Development

“Developers are probably going to be limited by their banks’ ability to give construction financing (though I will note construction financing is available for good developers. I can point to several deals we have done in the last several weeks). But I think that demand for new product is still going to be strong. I’ll go one step further than that. Recall the secular shift that I talked about that’s going to happen in the office segment (upgraded HVAC systems, upgraded safety systems related to wellness, etc.). These new products (where there was already a delta being formed between new and A-minus products in the last 5 years) that gap is going to get wider as some of this newer product employs new wellness systems that will attract even more tenants.”

“There’s actually silver lining to this terrible situation where people who will soon have new product coming out of the ground and are just designing their spaces today, have the ability to be at the vanguard of changes that are going to become ubiquitous over the next 10 years.”

Read the full webinar transcript for more…