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The COVID-19 pandemic hit the net lease transaction market hard in the second quarter.
In Q2, asking cap rates in the net lease retail sector increased by ten basis points to 6.25%, according to The Boulder Group’s 2nd Quarter Net Lease Research Report.
“For the average retail tenant, whether it be in casual dining or fitness or movie theaters or soft goods, saw that their balance sheet and business didn’t get better in the last three months,” says Randy Blankstein, president of The Boulder Group. “This was not a great quarter for retail in general. Most stores weren’t open for the majority of the quarter.”
It’s common knowledge that the COVID-19 shutdown has hit some CRE sectors much harder than others. As The Boulder Group’s report shows, that trend has resonated through the net lease transaction market. Industrial properties, which benefited from the boom in e-commerce, saw cap rates fall
With most buildings empty or near empty from coast to coast, office investors put a brave face on the future of the sector—“it’s still alive,” “not going anywhere,” “as soon as there is a vaccine we will be back to normal.”
But underneath, they are nervous. “It better come back because, we have a lot of money in them.” And some tenants are asking for rent concessions and forbearance. This retrenchment is nothing like the ongoing retail debacle, but it’s concerning and will eat into NOI. Long-term leases offer protection, but any pending rollovers are fraught.
In short, the virus is having short-term impacts, which could bleed into long-term ones.
The short-term impacts include rent relief as tenants struggle in a recessionary economy and re-imagining office layouts to provide for social distancing. Most observers are giving up on a V-shape economic recovery, especially as case numbers rebound and the death
As tenants go back to work in commercial buildings, communication will be the key to a successful response to COVID-19 outbreaks.
“During the current period of crisis, our immediate goals from an ESG perspective are to communicate with stakeholders and address the acute incidents that can occur in the building,” DWS Group wrote in a whitepaper on ESG investing in real estate in a post-COVID world. “This involves the formation of rapid response crisis teams on-call to address incidents occurring at any time of day and communicating with residents pro-actively and regularly.”
When there is an actual COVID-19 case in a building, Jessica Elengical, head of ESG strategy, Alternatives at DWS, says the rapid response team should be ready to mobilize, regardless of the time of day. This team should encompass representatives from property management, asset management, risk management and communications professionals.
“When a case comes up, how do you
Manhattan’s 12.5 million square feet of ongoing office construction spans 16 projects slated for completion over the next three years. Roughly 53% of that space is pre-leased. New construction and renovation projects in Manhattan are capturing most new leasing activity, dovetailing with a flight to quality among large tenants predating the pandemic.
Office tenants already have leased 68% of the 10.2 million square feet under construction in San Jose. In addition, 23 million square feet of projects are approved but not yet under construction in the market, and another 32 million square feet of projects are in the planning stages, some of which might be delayed. Much demand stems from a shift in this market to occupiers favoring more traditional, modern office space for software development rather than the R&D and flex space previously used for hardware design.
Most of the 8.4 million square feet under construction in Washington, DC
The affordable housing asset class was attracting investors of all sizes long before the pandemic struck. Companies such as Blackstone, PGIM and Starwood, for example, have all staked out a position in this category in recent years.
Now, with the pandemic well underway and showing little signs of easing, investors are even more eager to acquire these properties despite the overarching concerns in commercial real estate about incomes and long-term growth, according to Doug Childers, co-head of JLL Affordable Housing.
“More people are expected to qualify to live in affordable housing in the future” due to the pandemic’s significant economic effects, he tells GlobeSt.com.
Could this be the reason why there is no bid-ask spread with affordable housing assets? No, Childers says. “The reason we are not seeing a bid-ask spread with affordable housing is because these rents are backed by the federal or local governments. Also, there is an