Investors Eyeing Second Half Bounce If Coronavirus Is Contained

If the spread of the coronavirus is contained, some economists and commercial real estate experts are predicting that the property market should bounce back later this year.

"As of today, the consensus is still assuming a rebound at some point in the second half of 2020," Cushman & Wakefield Global Chief Economist Kevin Thorpe said during a company webinar on the coronavirus, which causes COVID-19.

But that is a big "if," Thorpe hedges, adding that it will depend on the flattening and containment of COVID-19, a highly contagious and potentially deadly respiratory illness.

The coronavirus has hit the commercial real estate sector hard in the past month, with some real estate investment trusts down by as much as 35%. 

Worldwide, several countries and 45 states in the U.S. closed businesses and schools, with some people working remotely to promote social distancing as a way to reduce the spread of the disease. Air travel, tourism and foot traffic have mostly stopped, and restaurants have either been forced to shutter or are open at limited capacity. 

"These social distancing measures comes at a great economic cost," Thorpe said. "Human interaction is the key ingredient to a healthy functioning global economy ... Human interaction is baked into the gross domestic product and with this event, people are instructed to not interact."

Cushman & Wakefield is the latest company to offer a COVID-19 webinar in an effort to update and reassure partners and clients that the company is addressing this crisis head on. Competitor CBRE held a similar webinar last week, and other commercial real estate companies are doing the same in the weeks to come.

"We're all living a public health crisis right now," Cushman & Wakefield Executive Chairman and CEO Brett White said. "While the purpose of this call is about the economy, certainly, our collective top priority is that people are safe and that they are taking all the necessary steps to protect each other and our families right now."

Cushman & Wakefield is one of the largest commercial real estate companies in the world, with more than 53,000 employees in 60 countries. Last year, the company brought in more than $8.8B in revenues from services ranging from property management, leasing to capital markets. 

White said the company has established a global task force to address the coronavirus pandemic. But he makes it clear that Cushman & Wakefield is "open for business," he said.

As of Monday afternoon, there are more than 367,000 confirmed positive coronavirus cases with 16,000 deaths, according to Johns Hopkins. In the U.S., there are 41,500 positive cases and 499 deaths. 

Thorpe, the company's economist said, despite the numbers, there is reason for optimism. The number of confirmed cases in places where the outbreak struck earlier this year, such as China and South Korea, has leveled off, he said. "This gives us a precedent for hope," Thorpe said. "But I want to ground this in reality."

But even if the number of people infected has gone down in those areas, the economies in those countries still aren't operating at full capacity.

Speaking with people in China, Thorpe said businesses are just beginning to resume, but there has been no sudden relief or pent-up demand from consumers flocking to shop at nearby stores. Several cities in China are still enforcing a 14-day self-quarantine policy and for people who have gone back to work, a focus on face masks, gloves and paying more attention to hygiene are common, Thorpe said.

"No one is crying victory, but there is a better sense of timing," he said.

He added that going into the coronavirus crisis, the commercial real estate sector was seeing positive rent growth in many markets, property values were rising and the industry overall had a lot of momentum. "We can take some comfort in just knowing that we entered with solid footing, which should make for a quicker return to normal," he said. 

Cushman & Wakefield Chairman Doug Harmon said although he expects commercial transaction volumes to be down, and to stay down in the foreseeable future, at least until a coronavirus vaccine, cure or flattening of the virus occurs, there are still a lot of investors wanting to capitalize on the down market. 

Harmon said there are investors still trying to close deals, including clients who area asking he and his team to be ready once order is restored. Other investors around the world have cash and are looking for attractive investment opportunities.

"What all this dialogue demonstrates to us, is that business is not frozen," Harmon said. "It is active."