Will live-work-play properties bounce back faster than stand-alone, single-use properties? CBRE thinks so.
“That’s partly because the live-work-play environment was the future before COVID-19,” said Spencer Levy, CBRE senior economic adviser & chairman of Americas Research. “This is particularly important to the asset type that is most challenged—retail—since being connected to walkable multifamily and office will be an important anchor for retail to recover from this crisis faster.”
Density concerns stemming from the spread of COVID-19, he believes, are short term in nature. “Big cities and mixed-use complexes will be long-term attractors to the best tenant, as they were before the crisis,
CBRE has roughly categorized commercial real estate assets into a first-second-third forecast with multifamily and industrial recovering first, and multifamily being slightly ahead of industrial due to direct government support and strong initial rent collection. Office is in the second category, while retail and hotels are in third position.
The performance of diversified REITs in this crisis period is very much determined by property type and location, notes Calvin Schnure, senior economist for NAREIT. The information gleaned by NAREIT so far suggests that diversified REITS that include retail operations and restaurants are suffering the most, due to lost rent. But diversified REITs that include multifamily are faring better because they tend to be Class A apartments with higher-income residents who are not losing their jobs at the same rate as residents living in privately owned apartments.
According to Schnure, long-term leases and high-quality tenants are giving the office sector some protection from the crisis. “These are tenants who are probably suffering with some of their own cash flow, but they have a strong balance sheet and the resources to make their payments,” he added.
Meanwhile, real estate is still about location, said Schnure, noting viable tenants will want to work with property owners to make sure they can fulfill their obligations.
Sector Insights rotates among market rate/luxury housing, workforce housing, low-income housing, student housing, senior housing and mixed-use.