In this webinar, Director of the Graaskamp Center for Real Estate of the University of Wisconsin-Madison, Dr. Mark Eppli, shared his outlook on the commercial real estate scene following the COVID-19 pandemic. Special thank you to CARW Chairman and Director of Corporate Solution at Colliers-International, Joe Lak, for moderating the discussion and Director of the Center of Real Estate at Marquette University, Andy Hunt, for presenting our speakers. The full video can be found HERE.
Here are a few key points Dr. Eppli touched on in this webinar:
1. As an academic with a strong data and research background, Dr. Eppli mentioned that he is tracking unemployment claims and GDP as two main indicators of what is currently happening in our world. Dr. Eppli also mentioned he has been tracking TSA screening data, Uber and Lyft ridership data, among other things.
- Over the last eight weeks, first-time unemployment claims totaled 40 million civilian employees out of 64 million people in the U.S. job market. Eppli noted that this is a startling 1 out of 4 people that have put out unemployment claims in the last eight weeks.
- In terms of GDP, 70% is consumption (i.e. travel, dining, entertainment, etc.) We’re likely to see a pretty big fallout in GDP numbers and about a 6-8% reduction in GDP for the year. For reference, at the worst of the Great Recession, the year-over-year GDP drop was 3.9%.
2. When asked to compare the Great Recession of 2008 to what we’re currently experiencing, Dr. Eppli emphasized that the Great Recession of 08′ was an economic crisis. On the other hand, what we currently find ourselves in is a health care pandemic that has economic implications, not an economic crisis that caused the downturn. Looking forward, Eppli noted NIH’s Dr. Fauchi’s claim that there will likely be 100 million Coronavirus vaccines by the beginning of 2021 as data that shows signs of hope on the horizon.
3. The commercial real estate markets are often segmented into the four major property-types (office, industrial, retail and multifamily.) Dr. Eppli noted the current trends for each major property-type using information from Real Capital Analytics, CoStar and other data sources:
- Industrial - Year over year transaction volume is down 60%. Most tenants are paying. Those that are not paying, landlords have leverage and are using the leverage of tight markets and the ability to release.
- Apartments – Year over year transaction volume is down 71%. The National Multifamily Housing Council (NMHC)’s Rent Payment Tracker reveals that for 11.7 million units tracked through May 27, rent delinquency rates are up 1.5%year over year. Local operators of class A properties are vesting those numbers in Milwaukee and class B properties and below are echoing national numbers.
- Retail - Appears to be the most challenged with a year over year transaction volume off 84%. CBL missed debt payments yesterday with a 25-30% payment rate for mall tenants, with other retail tracking at an April payment rate about 50% payment rate for national tenants and 40% for non-national tenants according to Datex.
- Office - This is the wild card with a year over year transaction volume off 60%. He noted a few interesting questions related to this property-type including: Does working from home work? What will happen to co-working spaces and social distancing? Do spaces need to be reconfigured and what is the cost? Dr. Eppli explained that innovation happens in clusters; therefore it’s anticipated that offices will come back, but it could be a slow lease up.
- Hotel - Frozen with only 10 transactions in April.
Sincere appreciation to Ali De Luca and Steve Jagler of Kane Communications for their production talents and coordination.