Pandemic Means Winners and Losers Among Property Types
"Recessions create stress," write Cushman & Wakefield’s Kevin Thorpe and Ken McCarthy, who add, "If there was ever a recession that could cause stress, it is the COVID-19 Recession of 2020. Not only is it unlike any downturn we have seen before, but it already has the distinction of being the worst contraction in history."
The changes wrought by the extended social and business shutdowns have impacted properties across the globe. “Whether they are winners, losers or somewhere in between, major and/or niche property types are sure to provide opportunities for occupiers and investors during this recession and well into the recovery,” Thorpe and McCarthy write in the latest edition of Cushman & Wakefield’s The Edge online magazine.
The clear winners are sectors that were already benefiting from demographic and structural shifts in the economy, with these shifts accelerated by COVID-19. They’re also benefiting from the rapid evolution of technology and its application to a specific set of challenges, write Thorpe and McCarthy.
Predictably, industrial is among the winners, thanks to a dramatic surge in e-commerce demand. “In this environment, it is no surprise that demand for logistics space is nearly back to pre-crisis levels and occupancy is near all-time highs,” Thorpe and McCarthy write. “When have we ever seen a recession lead to higher demand for space of any kind?”
The pandemic has also led to a higher valuation for Zoom Video Communications, which recently was valued at $125 billion thanks to countless video conference calls that frequently have taken the place of face-to-face meetings. Couple that with the boost in cloud-computing requirements for a workforce that has shifted to home offices, and it’s easy to see that the data center category has been another winner in the current environment.
Life sciences real estate has also experienced a demand surge in the past several months. “Already in growth mode due to the aging baby boomer generation, the pandemic is further boosting funding to the sector, leading to higher employment and more need for space,” write Thorpe and McCarthy.
Falling into the “somewhere in between” category are office and multifamily. Both are being significantly impacted by the recession, but there also are structural factors that are creating “long-term tailwinds that will ultimately help these sectors re-emerge when the recession is in the rearview mirror,” Thorpe and McCarthy write.
At the other end of the spectrum from clear winners is retail, which Thorpe and McCarthy categorize as “the most challenged” rather than labeling it a loser. “After COVID-19, experiential concepts may come storming back,” they write. “People are pining to go out and shop, eat and be entertained—pent up demand will be unleashed. But there will be longer-lasting implications for certain concepts— the U.S. was over-retailed, so a lot of this retail will need to be reimagined.”