Boulder Valley RE/Con: As economies brace for more months with COVID, CRE’s future is mixed

BOULDER — As the world prepares for several more months before having wide access to a COVID-19 vaccine, the three main sectors of the commercial real estate market are going to have drastically different futures.

That’s the prediction from Patty Silverstein, the president and chief economist at Littleton-based consulting firm Development Research Partners, who spoke at the first session of BizWest’s virtual Boulder Valley Real Estate Conference Tuesday morning.

Job recovery could begin next year, but take a while

SPONSORED CONTENT

How dispatchable resources enable the clean energy transition

Platte River must prepare for the retirement of 431 megawatts (MW) of dispatchable, coal-fired generation by the end of the decade and address more frequent extreme weather events that can bring dark calms (periods when there is no sun or wind).

Silverstein said the economic picture looks difficult for the rest of the year and through the first part of 2021, a period where the promising COVID-19 vaccines produced by Pfizer Inc. (NYSE: PFE) and Moderna Inc. (Nasdaq: MDNA) could be distributed to health-care workers and vulnerable populations but not to the general public.

Every country is expected to post contracting gross domestic product figures except China, which may pull a slight amount of growth, but the International Monetary Fund predicts that global GDP will start to recover next year.

Silverstein said that in the U.S., the extraordinary actions from the Federal Reserve and Congress’ initial stimulus packages kept the economy from collapse, but months of no additional support has left business and personal pocketbooks “strapped pretty thin.”

She pointed to federal data showing that 2 million Americans were permanently laid off in April, but that figure has increased to 3.7 million in October, showing that more people who were initially furloughed are being cut as the economy continues to flag.

Although Silverstein said declining numbers of furloughed and unemployed Americans is a positive sign, she notes that some economists don’t expect widespread job recovery until 2022 or even 2023.

“We’re going to start feeling better, and we’re going to start feeling like we are indeed making some progress and all, but it still is going to be a bit of a long slog out there,” she said.

Retail is weak, office is weak (right now), industrial is hot

The market for office real estate is weak right now with work-from-home the safest option for the majority of companies, and several firms such as Shopify Inc. (NYSE: SHOP), Twitter Inc. (Nasdaq: TWTR) and Facebook Inc. (NYSE: FB) have announced various plans to allow permanent work-from-home or shift completely to an at-home model over the next several years.

Silverstein believes that some portion of the population will accept that offer, but the number of people who want to return to an in-person office will far outweigh that and restore some long-term value for that section of the commercial real estate market.

“I think a lot of folks are going to say, ‘No, put me back in the office, put me back with my people, put me back into some social engagement there,” she said.

However, industrial properties along the Front Range continue to draw top dollar, which Silverstein attributes to consumers shifting heavily to e-commerce during the pandemic. Spending data shows that at the national level, consumers are spending 20% more this year in online shopping compared to the same time period last year.

At the same time, the market for retail and restaurant space is particularly weak as stay-at-home orders throughout the earlier part of the year crushed consumer demand to be in somewhat confined, high-touch spaces.

Likely no federal stimulus this year, but state stimulus a possibility

Economic watchers are fretting about a new wave of shutdown measures across the country as the pandemic is spreading far wider than in the initial outbreak. The U.S. as a whole has recorded at least 100,000 new cases per day since early November, according to the COVID Tracking Project, and reached a seven-day average of 150,000 cases on Monday.

Silverstein doesn’t expect another federal pandemic aid package to pass until president-elect Joe Biden is inaugurated in late January, but she did note that state legislators could pass an approximately $1.3 billion stimulus plan as laid out by Gov. Jared Polis this month in his annual budget request.

Polis announced a special session for legislators to discuss the stimulus in a press conference Tuesday afternoon, with specific schedules to be announced by the end of the week.

© 2020 BizWest Media LLC