Summary Report: Data for Navigating COVID-19
marzo 30, 2020
Considering the constantly evolving environment and information overload surrounding COVID-19, the aim of this article is to provide a rundown of relevant market intel in small, digestible bullet points. We have summarized some of the findings from various articles, reports, webinars and market participants interviews over the past week or so below.
- Economic Outlook: Economic forecasts are being revised consistently as “stay at home” orders have spread across the country and various parts of the economy have slowed or stopped completely. For example, between March 17 and March 25, JPMorgan revised first quarter GDP growth forecast from -4.0 to -10.0 percent and second quarter from -14.0 percent to -25.0 percent. Currently first quarter GDP forecasts range from -2.4 to -10.0 percent, with second quarter GDP forecasts ranging from -20.5 to -30.1 percent. In general, the consensus is contraction will be most significant in second quarter 2020, with strong growth forecast for the second half of 2020 into 2021. While there is debate about how swift the recovery will be, and what “shape” the recovery will take, the forecasts that are currently available suggest 2020 annual average GDP contraction ranging from -2.8 to -3.8 percent with low single-digit to mid-double digit growth expected in the second half of the year and into 2021. It is noteworthy that many of these forecasts occurred prior to the reporting of the 3.28 million jobless claims released on March 26 and it is possible further downward revisions will result. One consistent theme across these projections is they are highly dependent upon the velocity of COVID-19 spread, many of which expect the virus to peak in April/May with the economy beginning to re-open in late second quarter to early third quarter. On March 29, President Trump extended the social distancing guidelines through April 30 and also commented that the models they are running project that virus fatalities will peak in approximately two weeks, around Easter weekend, with the economy beginning to re-open across the country around June 1. This announcement appears to be consistent with underlying assumptions in the GDP projections noted below.
- Market Conditions: Presently, asset pricing is becoming the biggest issue in the current environment, liquidity has also become constrained. Congress passed a $2.2 trillion stimulus package aimed at backstopping the economy and increasing liquidity. Market participants have shifted their initial perspective several weeks ago from viewing COVID-19 as a momentary stall in the market, that was mostly impacting logistics on conducting diligence and site visits, to now having a tangible shift in asset pricing given uncertainty surrounding the extent of the impact on property level performance. As a result, investors are hitting the pause button. Brokers have reported holding back assets being readied to go to market, taking a “wait and see” approach until the current situation stabilizes. With respect to active deals and contracts, brokers are reporting smaller buyer pools, large bid-ask spreads and many buyers are asking for price reductions. For example, a survey of CBRE Capital Market professional on March 18 noted the following:
At this point, across various publications, articles, reports, etc., 60 to 90 days seems to be the horizon within which a return to normalcy is expected to begin. However, questions persist as to whether the COVID-19 outbreak will change the long-term demand across various asset classes and what that potential shift will look like, if there is one.
- Valuation Considerations: At the end of the first quarter, we are seeing values shift primarily in hotel, retail, multifamily and student housing assets. Hotels have been hardest hit and have experienced substantial declines in RevPAR nation-wide. Value declines in retail, multifamily and student housing have occurred due to increases in credit loss in anticipation of increasing rent relief requests, particularly in non-grocer and pharmacy retail tenants. Market participants have also indicated increases in discount rates for off campus student housing are warranted given the lower near-term leasing velocity and uncertainty surrounding delays to the fall semester. In terms of multifamily, market participants have noted rent growth projections are likely to be revised downward, with no year one rent growth likely in certain markets. The impact on office asset values will vary by location. For example, office product in markets with strong fundamentals such as San Francisco and Boston are likely to see less of an impact than those in Houston, which are also impacted by declining oil prices. Generally, consensus is forming that industrial will fare the best out of the various asset classes and the current situation may further hasten the e-commerce transition. However, manufacturing will be adversely impacted in the near-term as will markets that have a greater reliance on manufacturing.