MARCH 13, 2020
Commonly referred to as “COVID,” “COVID-19” or “coronavirus,” coronavirus disease (COVID-19) comes from the severe acute respiratory syndrome coronavirus 2 (SARS‐CoV‐2). (Source: World Health Organization)
COVID-19 typically shows up within between 2 days and two weeks of exposure and presents with fever, cough, and shortness of breath, although symptoms vary. In many patients, COVID-19 passes without incident, although in some, it can cause serious complications which can require hospitalization or become fatal.
As of the morning of March 12, 2020, COVID-19 has presented in 125 countries. Of approximately 130,000 reported cases worldwide, almost 69,000 have resulted in a patient returning to health. Unfortunately, 4,700 have resulted in fatalities. The remainder are still being tracked.
SOURCES: WHO.int., CDC.gov, worldometers.info/coronavirus
US RESPONSES TO COVID – 19
INTERNATIONAL TRAVEL LIMITATIONS
What first started with limitations in travel to China has now expanded to cover multiple countries across multiple continents. While we are not qualified to comment on the epidemiological impact of this policy, we do see potential near-term economic consequences.
Driven by a combination of government education and action and private decisions, a movement towards an increased level of social distancing is afoot. Major events are being cancelled, postponed or reduced in impact and companies are rethinking travel and even attendance policies. Our research sees this potentially having a significant near-term effect on the greater economy.
ENHANCED COMMUNITY RESPONSE
In addition to the general movement towards social distancing, more acute responses are beginning to occur. We expect that we will see more responses like the recent deployment of the National Guard to Rochelle, NY to deal with their COVID-19 outbreak. While these will be extremely impactful where they occur, we do not see them having significant and systemic impacts.
COVID-19 AND THE US ECONOMY
NO SYSTEMIC RISK
While COVID-19 is already causing real challenges throughout the US and the world, it is unlikely to pose a long-term systemic risk to our economy. Barring an epidemiological catastrophe, its effects are likely to be short-lived and business should return to normal in most sectors. The best comp for this situation is the 9/11 attacks in 2001 which were deeply tragic, but whose economic impact was short-lived.
SHORT AND SHARP… IF ANYTHING
Given the impact on the travel industry and the potential short-term impact on retail and sales alone, it is highly possible that COVID-19 could produce a short-lived recession where total economic output could drop for a quarter or two. The impacts of this recession are unlikely to be felt across the economy, although a temporary decline could actually “prime the pump” for future growth.
WATCH BUSINESS TRAVEL
The sectors that are likely to see longer-lasting impacts from COVID-19 are those related to business travel. In challenging times, business travel budgets tend to drop quickly and recover slowly as companies attempt to continue reaping the benefits of reduced spending.
COVID-19 AND COMMERCIAL REAL ESTATE
Commercial real estate remains one of the leading safe harbor asset classes in world financial markets. As an investment vehicle, the real, tangible nature of real estate is a smart hedge against the volatility of the stock market. For this reason, demand for commercial real estate assets is likely to remain the same or increase through this crisis.
THE IMPACT OF LOW TREASURY RATES
With rates on the benchmark 10-year Treasury sitting well below 1 percent as of this writing, the COVID-19 crisis is contributing to the low cap rate environment. Thanks to low lending rates, buyers will also continue to benefit from a health Cap-to-Treasury spreads indicating healthy returns in Commercial Real Estate in their own right in addition comparison to bond yields.
LITTLE IMPACT ON TENANTS
Because any economic upheaval caused by COVID-19 is likely to be short lived, most tenants should weather what should be a brief one-to-two-month storm well. Those who cannot may very well have been on their way out of business, anyway. While this may cause disruptions to some landlords, it also frees space for newer, stronger tenants.
POSSIBLE LONG-TERM EFFECTS OF COVID-19
NEW APPROACHES TO THE WORKPLACE
The movement towards remote work for disease control could spur new discussions about the physical nature and layout of workplaces. A post-COVID-19 world could see a move back to lower employee density with more private offices. This trend could reduce demand for space in high-density co-working facilities. Another potential impact could be an increased use of telecommunicating to reduce exposure to group setting.
INCREASES IN CURBSIDE SHOPPING & DELIVERY
With feats about disease transmission extant throughout society, grab and go car-side shopping options are likely to gain first time users in the current crisis. It’s likely that many people who try this type of shopping will continue doing it after crisis passes. Non-contact food deliveries are likely to also remain at elevated levels.
INCREASED DEMAND FOR HEALTHCARE REAL ESTATE
The risk of COVID-19 is already spurring discussion about the need for additional healthcare infrastructure within the United States. While new construction is unlikely to bee completed in time to alleviate any crisis that arises as a result of COVID-19, construction could spike to ensure that our healthcare delivery system is fully prepared for the next pandemic.