Pandemic impact may weigh on commercial real estate recovery in US – ET RealEstate

LOS ANGELES: The distribution of COVID-19 vaccines is fueling optimism that Americans will increasingly return to the ways they used to shop, travel and work before the pandemic.

That would be a welcome change for companies that own office buildings and hotels, or those that lease space to restaurants, bars, department stores and other retailers. These have been the hardest-hit areas of commercial real estate over the past year as the pandemic forced many businesses to shut down temporarily or operate on a limited basis.

But even as the U.S. economy appears set to roar back to life this year, as many economists now predict, demand trends for commercial real estate could take longer to recover as businesses reassess their post-pandemic needs.

This means higher vacancy rates and declining rents this year, especially for retail and office property owners, said Thomas LaSalvia, senior economist with Moody’s Analytics.

“We see such potential and plenty of anecdotes and early data of actual shifts in how we work and how we shop,” he said. “The structural changes that are going on still give us pause to say that we’ve entered a recovery in terms of office or retail.”

So far this year, the commercial real estate market has seen some positive trends, as many businesses that had to shut down or operate on a limited basis are being given the green light to open by governments amid a pullback in new coronavirus cases and a ramped-up rollout of vaccines.

In March, the national unemployment rate fell from 6.2% to 6% and employers added 916,000 jobs, the most since August. That included 216,000 positions at restaurants, hotels and bars – the sector most damaged by the pandemic.

And this week, the International Monetary Fund forecast that the U.S. economy will grow 6.4% this year. That would fastest annual pace since 1984 and the strongest among the world’s wealthiest countries.

Still, commercial real estate owners face uncertainty as tenants reevaluate their needs. Will businesses that rented office space and spent the last year with most or all of their employees working from home need as much space? Will retailers that shifted more of their operations online during the pandemic cut back on storefronts? Will businesses resume spending on travel after having embraced video conferencing?

The full impact of these assessments may not be known for a while, as commercial property leases tend to run between five and 15 years. Still, some of the economic fallout from the pandemic is already visible in national commercial real estate industry data.

The vacancy rate for retail space increased to 10.6% in the first three months of this year from 10.2% a year earlier, according to Moody’s Analytics. And average effective rent, what’s left after taking out concessions offered by landlords to woo tenants, dropped 1.5%.

Moody’s Analytics is projecting vacancy rates for retail properties will climb to 11% or 12% as businesses reconsider their space needs after last year, when the percentage of retail purchases made online nearly doubled to 20%.

“We actually expect that to rise closer to 25% by 2025,” LaSalvia said. “This pandemic forced a lot of people to pull the bandage off in terms of being willing and able to shop online.”

For office space, vacancies rose to a rate of 18.2% in the first quarter from 17%, while average effective rent fell 1.8%, according to Moody’s Analytics.

Before the pandemic, office vacancies had been trending around 15% to 16% nationally. LaSalvia expects that to climb to 20% by 2022, then decline gradually to 17% by the end of the decade.

Hotels have had it particularly rough. Occupancy rates sank a year ago after global leisure and business travel all but ground to a halt. The monthly occupancy rate had been running well above 60% in 2019 and stood at 65.7% in February 2020. Two months later, it sunk to 20.6%, according to data from Moody’s Analytics.

Occupancy improved to about 45% last summer, before easing again. It was 34.4% in January, down from 66% a year earlier.

Meanwhile, the average revenue per available room, or RevPAR, a key hotel industry metric, was $30.27 in January, down 64% from a year earlier.

Hotel occupancy is expected to pick up this summer, as more people receive a COVID-19 vaccine and feel more at ease about travel. Last month, U.S. airport security checkpoints recorded sharp increases in traffic, including more than 1.5 million people in a single day, the largest number since the pandemic began.

“The summer leisure season will be pretty good,” LaSalvia said. “But the business travel is going to hold us back a little bit this year and it’s going to take maybe a couple of years before that really picks up again.”



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Record rise in Swedish house prices raises overheating fears – ET RealEstate

STOCKHOLM: The price of single family homes in Sweden rocketed 17% in the first three months of the year, data showed on Wednesday, increasing concerns that the market is overheating.

The rise was a record, according to Svensk Maklarstatistik, an association of real estate agents, since it started collecting data in 2005.

Apartment prices rose 8% over the same period.

“Big price rises are usually followed by a recoil,” Hans Flink, head of sales at Maklarstatistik said. “I wouldn’t call it a bubble, but there could be a reverse.”

Sweden’s housing market has been a headache for authorities for decades. The population has increased rapidly, especially in cities like the capital, Stockholm, and construction has failed to keep up.

The rental market is highly regulated and widely seen as dysfunctional. At the same time ultra-low interest rates have pushed up prices and borrowing levels, leading the central bank, among others, to fret about the threat to the banking system.

The pandemic has failed to cap price growth, with the economy coping relatively well, partly due to the fact that Sweden has not adopted the kind of strict lockdown measures taken by much of Europe.

But with the country in the middle of a third wave of infections, uncertainty remains high.

Even without another economic shock, borrowers may face higher costs. The central bank has said its benchmark rates are on hold, but globally, markets spy a potential pick up in inflation on the horizon and longer term international bond yields have risen.

Ultra-low mortgage rates – the average is around 1.3% for a floating-rate loan – may also start to rise. Furthermore, the financial watchdog has said it will restore stricter mortgage repayment rules, suspended at the start of the pandemic, later this year.

“People who are chasing after villas should consider that low rates and a shortage of houses for sale can push up prices to levels that are not always sustainable in the long term,” Marcus Svanberg, CEO at insurer Lansforsakringar’s real estate arm, said.



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China’s home prices extend gains in March, defy renewed curbs: Survey – ET RealEstate

BEIJING: China‘s monthly new home prices maintained steady growth in March, while the resale housing market also saw an uptick, despite a renewed crackdown on property speculation, a private-sector survey showed on Thursday.

New home prices in 100 cities rose 0.2% in March from a month earlier, unchanged from February’s pace, according to data from China Index Academy, one of the country’s largest independent real estate research firms.

More cities reported monthly gains, with the number up to 76 from 66 in February, while 23 cities posted lower home prices compared with 27 in the preceding month.

In another sign of strong demand, growth in second-hand home prices quickened to 0.44% in March from previous month, compared with 0.28% in February.

“We saw a jump in supply of new housing projects in major cities, as developers sped up sales in March, which is a traditionally a peak season,” said China Index Academy Research Director Cao Jingjing.

Cao also noted Guangzhou and Chongqing saw strong residential property markets, while demand in the northern cities of Taiyuan and Tianjin waned.

Authorities have maintained a tight grip on the sector, with measures ranging from stepped-up scrutiny on illegal flows of funds to fixed price references for secondary market financing in some cities.

The government has also vowed to boost residential land supply to contain fast-rising home prices.

In a whack-a-mole clampdown, the southern capital city of Nanchang was last week ordered to revoke its easing policies one day after their release, as policymakers remained vigilant to any bubbles.

China’s land sales by volume rose 11% in the first quarter from a year earlier, CIA data showed.



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Brookfield Asset to buy remaining stake in real estate unit for $6.5 billion – ET RealEstate

BENGALURU: Canada‘s Brookfield Asset Management Inc would buy the remaining stake it does not already own in its commercial real estate business Brookfield Property Partners for about $6.5 billion, the companies said on Thursday.

The deal was a raise from the $5.9 billion the alternative-asset manager offered in January this year.

The COVID-19 pandemic has driven a shift to remote working and kept people away from malls and shopping centres, hurting real estate companies such as Brookfield Property.

Unitholders of Brookfield Property will get $18.17 per unit, a premium of 26% to stock’s last close on Dec. 31, before the announcement was made.

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