The COVID-19 pandemic is expected to slow commercial real estate markets over the next two years, but the damage to the sector will fall short of what the industry suffered in the wake of the 2008’s Great Recession, according to the Urban Land Institute’s Spring Economic Forecast.
Measures of the nation’s economic growth, according to the 39 economists from 35 real estate organizations who contributed to the semi-annual outlook, should show improvement by next year. Job growth, however, is expected to trail improvements in the broader economy, and demand for commercial space will lag as a result.
“A strong but not full recovery of 8 million jobs is expected (within two years),” Anita Kramer, senior vice president at ULI Center for Capital Markets and Real Estate, said during a presentation of the report.
The nation’s Gross Domestic Product, according to ULI, is expected rebound by next year and exceed the annual measures of the past 14 years in 2021 and 2022. But that growth will not be enough to recoup all the jobs lost during the COVID-19 lockdown.
While ULI expects 80% of jobs lost due to the pandemic to return by 2022, the national unemployment rate for 2020 is anticipated to exceed 11% through the end of 2020.
In April the national unemployment level reached nearly 15%, which is the highest since the Great Depression roughly 90 years ago. Kevin Hassett, a White House economic adviser, told CNN Friday that number could rise to 23% next month.
Nationally 2.4 million people filed claims for unemployment benefits last week, according to the U.S. Labor Department. That increased the total number nationally of workers seeking unemployment benefits over the last nine weeks to 38 million.
In Maryland alone roughly 609,000 workers lost their jobs during that same time frame, which caused the state’s seasonally adjusted unemployment rate to surge to nearly 10%.
ULI’s report projects the national unemployment rate will decrease to slightly less than 8% next year before declining to just under 6% in 2022. But those figures still rival jobless levels recorded in the aftermath of the 2008 financial meltdown.
As a result, demand for retail, office, and industrial space, along with apartments, is expected to fall anywhere from 25 to 50 basis points over the next year.
During the next three years retail availability will average in excess of 12% against a 20-year average of 9.7%. During the same time span office vacancy rates will average nearly 15%, which is a 1% increase over the average for the past two decades.
Nationally, availability of warehouse space is expected to increase slightly compared to recent years. Industrial assets had been in record high-demand because of e-commerce’s need for distribution space.
Demand for apartment space is projected to fall, but not as sharply as in other asset types. The report estimates that nationally the availability rate for apartments will average more than 5%, and the two-year average will be a little more than 5.2%.
As a result of the COVID-19 outbreak ULI’s report said, the volume of commercial real estate transactions has fallen nearly 47%, down from $588 billion in 2019 to $275 billion, the lowest level since 2011.
Despite the drop-off, however, the volume of transactions are expected to remain well above levels following the Great Recession, and the substantial tightening of credit following the financial meltdown 12 years ago. Pricing of commercial property is projected to decline by 7% this year but regain nearly all of its value on the next two years.