Bailouts and stimulus checks have been implemented. $2 Trillion in capital has helped the Stock Market rebound. Real estate mortgage rates are expected to remain low, driving up the price of housing. But one of the hardest hit by COVID-19, commercial real estate, remains largely on its own. While other industries, and many Americans have been helped since the pandemic temporarily shut down the US economy, CRE has been ignored.
Ignored, despite being one of the hardest hit industries in the world, with little assurance as to when normalcy resumes. While some retail is open, it’s operating with less capacity. In most states retail can only operate at 50% capacity, if at all. In others bars remain closed, or are being closed down again, due to a spike in COVID-19 cases. While some Americans are back to work, many are still struggling to pay rents. Others are working from home, with office buildings shut down for the foreseeable future.
It’s true that some of the feds initial $2 trillion stimulus did help certain areas of CRE, namely hotels, small businesses and others able to use grants, loans and bonds, nothing specific has been done to focus on commercial real estate, an industry with a multi-billion-dollar impact on the US economy.
The commercial sector has been especially hard hit. Many owners have tenants who are unable to pay rent, while the mortgages are due every month. CMBS data tracker Trepp has found delinquency rates for property loans in commercial real estate in June 2020 was 10.3%. One year ago that number was 2.3%. Goldman Sachs expects the numbers from July will exceed 11%.
While commercial real estate prices have fallen 11% so far in 2020, the US housing market prices are on the rise. Stocks are trading 16% higher than the lows at the beginning of the pandemic. The stimulus package is doing its job, but CRE is still left out to dry. While some people are defying orders and traveling more, the numbers this year aren’t nearly enough to off-set losses for hotels, for example.
The commercial real estate industry is vital to the United States economy and a lot of rapid change has been thrust on our particular shoulders. CRE will be different until we are back to normal, likely longer. Offices will need to be re-thought. Retail companies, restaurants and travel companies will close. The health of our industry represents and overall wellness in the economy. It’s the hope of many in the CRE industry that the next stimulus will help the investors who have made this industry one of the strongest in the country.
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