Stock market volatility is creating an environment of uncertainty. That said, in many ways, this could benefit commercial real estate in that rate cuts have made the cost of debt capital cheaper and will cause many to seek more stable investment vehicles and hard assets.
Where some investors are perhaps feeling pause is in assessing the health of their tenants, many of whom have been impacted during this time. Value dilution today would be more so a result of forecasting future property revenue than current cap rate compression. With the cost of capital decreasing as investors flock from the market to other investment vehicles, cap rates in many instances have followed or are holding steady and value loss can largely be attributed to fear of vacancy spikes or tenant distress. There is certainly a sentiment of waiting for the storm to pass before making large investment decisions, but for reasons mentioned, the volatility has highlighted the attractiveness and at times stability of commercial real estate. Our prediction is that hospitality will be impacted fairly quickly with travel being restricted. Hoteliers are beginning to suffer and this will continue to grow if the coronavirus isn’t quickly contained.
Trade has also suffered, which will impact industrial. Lastly, some retailers are feeling the impact as shopping in large crowds has been restricted and travel is becoming more and more limited.24 March 2020