Nearly 10 months into a global pandemic, real estate companies are finally seeing a way out of the darkness. An end to months of financial and operational struggles could be in sight. Promising news of a vaccine from drugmakers Pfizer and Moderna have sent real estate stocks soaring. A post-covid world is no longer merely a vague hope. With a potential end to the toil, the real estate sector can now start planning for a return to normal.
Preliminary results from Pfizer and its partner BioNTech suggest the COVID-19 vaccine is more than 95 percent effective at preventing symptoms. Pfizer is still waiting on the last bit of safety data required by the FDA in its guidance for a potential Emergency Use Authorization but is already preparing for full-scale manufacturing. Based on current projections Pfizer expects to produce globally up to 50 million vaccine doses in 2020 and up to 1.3 billion doses in 2021. Moderna unveiled its own vaccine with even higher prevention rates and easier storage, sending the entire stock market to record highs.
“Certainly it’s not going to be pandemic for a lot longer because I believe the vaccines are going to turn that around,” Dr. Anthony Fauci said at an event hosted by the think tank Chatham House. Fauci predicted widespread access to a COVID-19 vaccine for most Americans before the end of April in a recent CNN interview.
The good news was immediately seen in the market. Share prices of some of the nation’s largest property groups were up more than 20 percent, outpacing the Dow Jones Industrial Average of three percent. Hotel and hospitality firms saw the biggest jolt in price, some posting 30 percent gains. Marriott International was up nearly 14 percent. Retail giant Simon Property Group rose 28 percent. Manhattan’s largest office landlord SL Green Realty Corp was up a whopping 37 percent. Brokerages were up to, with the largest, CBRE Group, gaining over 11 percent.
Cleary investors like what they see. Considering this economic downturn has hit commercial real estate much harder than residential, market recoveries are a positive sign. Things are moving in the right direction but even with these promising gains, all prices remain well below pre-pandemic levels. A potential vaccine has given capital markets more confidence, but it is consumer confidence that will be key in a full recovery. Offices are still dealing with rapidly rising vacancy, multifamily owners are seeing delinquent payments and falling rents. Travel is still a rarity, holding back the hospitality industry. Waves of restaurant closures are roiling the retail market.
A recovery won’t happen overnight. Expect a slow transition back to normal over a six to eight-month time frame once a vaccine is widely available. However murky the timeline remains, at least there is a timeline. CBRE experts predict office occupancy should materially increase and brick-and-mortar retail should more fully benefit from a resumption of activity in the second half of 2021. Full recovery in office, retail and hotels will take more than two years.
“We’re still looking at a negative 2020 with about a minus four percent GDP growth. I think we’re looking at the reverse of that in 2021. Somewhere between four to five percent GDP growth in the US and much higher in the world generally,” CBRE Global Chief Economist Richard Barkham said on CBRE’s The Weekly Take podcast. “That comes on the back of assumptions of an almost immediate deployment of a vaccine and continued economic stimulus building on the consumer recovery that’s already taking place.”
There are even reasons for the much-maligned retail sector to feel optimistic. Despite record unemployment, US retail spending is actually rising, up 1.9 percent over last month, according to the Commerce Department. That’s the fifth consecutive month of rising retail sales. Spending is up in almost every type of store except for electronics. September sales are up 5.4 percent year-over-year. Thanks in large part to massive government stimulus throughout the year, consumer incomes have risen in Q2 and Q3, bolstering spending.
Barkham predicts retail’s good run will get even better with the deployment of a vaccine. Retail sales higher than they were pre-pandemic will be juiced even further by what he dubbed ‘relief retail.’ Once a crisis is over, there’s a release of energy, he explained. You see it across history, like the way the 1920s was a reaction to the end of the Influenza pandemic and the First World War. People are eager to go out, to celebrate, spend money and do things they wouldn’t normally do. Normal life will return with vigor as we embrace family, friends, and colleagues we haven’t been able to hug in months.
“That’s going to be a real surprise in 2021, a real positivity around brick-and-mortar retail we haven’t seen for years frankly,” Barkham said.
Still, experts caution we are not out of the woods yet. Optimism can give way to complacency. Famed investor Bill Ackman has made headlines for his bearish outlook on the stock market. He thinks that an upcoming credit problem looms and worries that people will be less careful about preventative measures now that a vaccine is on the horizon.
In the end, it is up to us. The bright glimpse of our future offered to us by the imminent deployment of a vaccine is only possible with continued vigilance. Professor Fauci put it best when he said: “Ever since it became clear a few days ago that we have a really quite effective vaccine getting ready to deploy, [the message] is rather than ‘Hey don’t worry you’re OK,’ it’s ‘Don’t stop shooting, the cavalry is coming but don’t put your weapons down, you better keep fighting because they’re not here yet.'”