To talk about the future, the new normal is so uncertain. That is according to Mary Ludgin, head of global investment research at Heitman. According to Ludgin, who recently spoke at the CREW Network Convention: A Virtual Experience. She told the virtual audience that on the capital markets front, transaction activity is down 68% year over year and most of the activity is in industrial and medical office building storage. Value-add apartments are still in high demand and there is limited to no activity in office and retail at the moment, she explained.
“There is a bid/ask spread of about 10% to 15% on average. Multifamily pricing benefits from GDC financing,” she noted. One thing she is also seeing is several brokerage houses launching core “bullet proof” deals to test market pricing.
“We are seeing more creative investment processes emerging such as virtual tours and drones,” she explained. “We are also seeing a willingness of third parties to travel to conduct inspections.”
Since the pandemic began, much commentary has been generated about the spatial implications of what has become normal during this crisis, she explained. That includes work-from-home, buy on-line, telemedicine, and on-line education. “The forecasting on the lasting efforts of the virus/global recession tend to be binary.”
While she pointed out some variations by property type, overall, she expects meaningful tenant demand shifts in some sectors, while in other sectors, little will change.
So who are the big winners in the downturn? According to Ludgin, it is data centers and logistics.
“Work from home will dampen demand for office. The net effect of work from home is likely negative for space demand,” she said. “The trend towards more square footage per employee will likely be outpaced by space reductions from dedicated desk removal or increased remote work.” Back office, she added, may end up almost entirely remote depending on required infrastructure. “Freelancers in co-working—may go very strongly towards remote work. Fields that rely on collaboration (STEM) and face-to-face meetings could see office footprints grow.”
On the retail side, it is a challenging environment, noted Ludgin. “Vacancy is rising for all formats. Store sales remain below pre-Covid levels. Non-store sales are leveling off. Demand is highest for home-related and essential needs.”
Restaurants show improvement and fitness and entertainment is mixed, she noted. “E-commerce is rising but stores remain essential. Retailers with strong omni-channel operations were able to pivot during the lockdowns.
Overall, Ludgin says that there isn’t an end in sight to that uncertainty until vaccine in in place.