A sharp recession is unfolding across the region, but the U.S. real estate market was in good shape in the run-up to COVID-19.
The outbreak of COVID-19 has quickly translated into a severe shock for the global economy and real estate markets. Near-term indicators of performance have turned sharply downward, and the situation is fast-moving.
At the same time, some lessons for what is to come can be drawn from past downturns, although causes and effects are, as always, different this time. Values are set to remain under pressure in the near term owing to stress in occupier and investment markets — and the range of possible outcomes is wide — but there are some reasons for optimism.
Unusually, most real estate markets came into the crisis with relatively contained supply, generally low vacancy and contained use of leverage. At the same time, there is a significant pool of capital that has been raised and is ready to be deployed.
Looking ahead, opportunities are bound to arise. Cyclical market movements and distress are likely to translate into buying signals in the near term, although history shows that the window of opportunity can be short-lived.
For many investors, when it comes to meeting long-term performance objectives, it will be more important to maintain a focus on how the impact of COVID-19 plays out more gradually, looking for shifts in the ways the global economy, societies and supply chains interact with the built environment.