COVID-19 tops the list of major issues for real estate industry, which doesn't expect a swift recovery - Crain's Cleveland Business

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It's no shocker that the coronavirus crisis tops the list of issues that will have the most impact on the real estate industry over the next 12 months.

But the pandemic pervades every item, from affordable housing to infrastructure, on a top-10 lineup released this week by the Counselors of Real Estate.

"COVID-19 may be the greatest environmental experiment of our real estate lives," the industry organization wrote. "The change wrought by the virus and its aftermath will teach us about priorities, resilience and demand in ways that we did not dare test before."

The Counselors reveals its annual list after debate and voting among its 1,000 members, a group that includes nearly two-dozen senior professionals in Ohio. Michel Couillard, the organization's global chairman and a Canadian real estate executive, unveiled this year's iteration during a Thursday, June 25, virtual presentation to members of the National Association of Real Estate Editors.

Starting from the top, the 10 issues are as follows:

1. COVID-19: The industry is grappling with unanswerable questions about when the virus's spread will abate, when lockdowns will lift and when people will feel comfortable shopping, dining, working and living in close proximity to one another. Protracted remote work could reduce demand for office space. Conversely, social distancing might require more square feet per person. "Real estate is a lagging indicator," the Counselors wrote. "With the economy expected to take a few years to recover from the effects of COVID-19, our industry will show ripples for a few more."
2. Economic renewal: The Counselors expect a "W-shaped" recession, with improvement as businesses reopen followed by another downturn. Hospitality, retail, air travel and construction should see slow, incomplete rebounds over the next two years. State and local budget crunches, due to falling tax revenues, could lead to more job losses and curtailed spending on infrastructure. "We find deep and persistent challenges facing the economy and the real estate industry," they wrote.
3. Capital market risk: "Federal intervention helped to limit a complete seizing of the markets, but that doesn't necessarily mitigate the longer-term concern about defaults and losses," Couillard said. "While pricing stability and liquidity appear to have somewhat returned, late payments and loan defaults have seen a significant increase." In addition to the pandemic and related changes in consumer and investor behavior, the industry is closely watching reporting regulations, a looming change in a key benchmark for interest rates and, of course, the 2020 presidential race.
4. Public and private debt loads: "All real estate is local, and the value of — and demand for — commercial real estate can be influenced by local indebtedness funded by taxes. … Public debt needs to be translated locally to understand the interconnections of air travel, ports, logistics infrastructure and public transportation that influence commercial real estate demand, value and investment activity," the Counselors wrote.
5. Affordable housing: There is a huge need for affordable housing — both for rent and for sale — in the United States, the organization noted. They suggested communities consider changes to land-use laws, zoning policies and subsidy programs to incentivize investment in lower-cost housing and to get around opposition from vocal residents who don't want such projects in their neighborhoods.
6. Flow of people: "Reduced migration and COVID-19 behavioral changes will hurt demand for residential, hospitality and retail real estate, particularly in communities that have historically relied on such demand," the Counselors wrote.
7. Space use: The organization expects long-term changes to how people design and use buildings. Members predicted a new focus on health and wellness. "Many classic retail formats and retailers will never recover and will require creative reuse or fundamental redevelopment to replace their former vitality," they wrote.
8. Technology and workflow: The pandemic has highlighted the importance of technology, not only so people can work remotely, but also so landlords and employers can quantify and reduce risk. The Counselors predicted more tracking of people in buildings; contactless doors and elevators; air- and water-quality monitoring; remote services; and health screenings for contractors and staff.
9. Infrastructure: A global infrastructure crisis predated the pandemic. Now, that plight only will worsen, with the potential to hurt real estate values and hamper development, the organization wrote.
10. Environmental, social and governance issues: Within the real estate industry, members said, there must be "a more conscious focus on stakeholders and different perspectives — from investors and clients to tenants, residents, building staff and contractors. Issues of equity, sustainability, health and wellness and diversity all filter into decision-making."

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COVID-19 tops the list of major issues for real estate industry, which doesn't expect a swift recovery - Crain's Cleveland Business
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