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Perspectives in today’s real estate market
Global research updateOur market-leading global real estate research team is working daily to assess global real estate markets and provide insights from both a long term and immediate viewpoint, taking recent coronavirus developments into account. Below are our current highlights, while the full report can be downloaded above.
- The trajectory of the virus will determine the trajectory of the U.S. recovery – both remain highly uncertain as of mid-July 2020. The number of coronavirus cases continues to rise in the U.S. with more than 3 million Americans infected, representing 25% of total cases worldwide. Only six U.S. states are containing the virus. While another shutdown of the U.S. economy is unlikely, the continued rise of cases has caused California, Florida and Texas to halt or reverse re-opening plans.
- Apple Mobility (driving) data suggest the spiking number of cases has reduced mobility across Sunbelt cities relative to one month ago. Traffic was down more than 15% between mid-June and mid-July in San Antonio, Phoenix, Raleigh, Houston and Austin as cases spiked.
- The June employment report was positive as the U.S. economy registered a gain of 4.8 million jobs and the unemployment rate fell to 11%. However, the U.S. labor market is still down 14.6 million jobs since February 2020. Initial jobless claims remain near historical highs, topping 1.314 million for the week ending July 4th. Weekly initial jobless claims peaked at 7 million in late March. It is expected that initial jobless claims will rise in the coming weeks as states halt their re-opening plans.
- The St. Louis Fed Financial Stress Index, which measures both fixed income and equity market volatility, was above its long term average for the week ending July 3rd. Financial market volatility declined precipitously during the months of April and May but started rising in June and July as cases spiked across most U.S. states. Financial markets are betting that the Federal Reserve and Congress have provided and will continue to provide fiscal stimulus. Congress is expected to provide additional fiscal stimulus at some point this summer.
- According to Green Street’s Commercial Property Price Index, aggregate U.S. real estate values were down 11% in the first six months of 2020. Property values fell in April and May but held steady in June. Malls and lodging properties have seen values fall 25% in the last three months. Meanwhile industrial, manufactured homes, self-storage and life science values have fallen less than 5.0% during the pandemic.
- The pandemic is largely under control across Europe, with local outbreaks being handled by geographically limited and more flexible restrictions.
- To a large extent the economy is moving again, with lorry traffic back to 95% of pre-pandemic levels and car traffic at 80% of previous levels. However, the hospitality industry is still experiencing very low demand, establishments remain closed as consumers have not returned in the same numbers as before.
- Business travel is only a fraction of previous levels and surveys suggest that a majority of firms expect a permanent reduction. Tourism has tentatively resumed, but remains largely local also as entry from many countries outside Europe is barred, notably from the U.S., China and Russia. In addition social distancing measures make many hospitality operations unviable, which is also adding costs at the logistics and manufacturing sector.
- Governments across Europe are pivoting from support to stimulus measures to get the economy moving again. Extra fiscal spending is targeted at infrastructure, science and education and renewable energy, while family support programmes and temporary VAT cuts are targeted to increase spending.
- May economic data showed sharp rebounds in retail spending in the economies, which opened earlier and some improvements in industrial production and export activity from depressed levels during lockdown. The June numbers will give a clearer picture.
- Take-up of office and logistics space was about 50% lower than the previous year in the months of lockdown, while investment activity was holding up better. Recent evidence suggests that June will show improved numbers for leasing markets, while investment markets are likely report improvement with 2-3 months delay.
A new wave of infection has started to surface across some regional cities (Hong Kong, Tokyo and the Australian state of Victoria), raising concerns over the nascent economic recovery currently underway and risks to a more robust recovery in the second half of the year. China’s upcoming 2Q real GDP report will help provide strong guidance in tracing the coronavirus shock elsewhere, and a strong V-shape recovery (backed by improvement in domestic demand) will help assure that the success in containing the virus can deliver large initial growth dividends. But with growth elsewhere still on an uncertain path, a more broadly based recovery that includes manufacturing and exports will take time to materialize.
Macro outlook 26 Mar 2020
Conference call 26 Mar 2020