Most of the current economic news is pointing to an ongoing recovery, including for commercial real estate fundamentals, according to Nareit Senior Economist Calvin Schnure.
Speaking Sept. 14th on the Nareit REIT Report, Schnure noted that August retail sales data, to be reported on Wednesday, are expected to show a 1% increase. “Most aspects of retail sales actually are above pre-pandemic levels,” he said.
At the same time, the Job Openings and Labor Turnover Survey (JOLTS) showed that job openings rose 10% in July and are getting close to the range they were in late last year, Schnure said. Layoffs, meanwhile, have been below pre-pandemic rates during May, June, and July.
Against a backdrop of overall positive economic momentum, the performance gap between property sectors is likely to expand during the second half of the year, according to Carly Tripp, chief investment officer for the Americas at Nuveen Real Estate.
Speaking on the REIT Report, Tripp also discussed how to ideally go about positioning a portfolio amidst the current level of uncertainty.
“It’s really important to be disciplined and patient during times of uncertainty in order to not sacrifice long-term results or short-term gains,” Tripp said.
August employment data released last week shows that the economic recovery remains on track, despite worries about a potential rebound in the coronavirus, according to Nareit Senior Economist Calvin Schnure.
Employers hired back more than a million workers last month, with total payroll employment rising by 1.4 million. This number did include temporary workers hired for the Census, Schnure pointed out, but private payrolls were also up 1 million. The unemployment rate also dropped more than expected, to 8.4%.
At the same time, total employment is 11.5 million below where it was in February, Schnure noted, and less than half of the February to April decline in employment has been reversed at this point.
The appeal of attractive urban gathering places has remained intact throughout the coronavirus crisis, despite reports of preferences shifting toward less dense, suburban locations, says Robin Zeigler, EVP and COO at Cedar Realty Trust, Inc. (NYSE: CDR).
“One of the things we’ve seen during this period is that people do still have a desire to gather and to be in certain types of environments. The desire to have outdoor dining, the desire to go to a bar is still evident…people want good urban gathering places,” Zeigler told the REIT Report.
Cedar Realty owns a portfolio of predominantly grocery-anchored shopping centers in high-density urban markets from Washington, D.C. to Boston.
Continued signs of resilience in the economy, even as the coronavirus remains active, point to a positive environment for commercial real estate going forward, according to Nareit Senior Economist Calvin Schnure.
Speaking Aug. 31 on the REIT Report, Schnure noted that new home sales in July rose to their highest level since 2006. Durable goods orders rose more than expected, and industrial production and business investment are on track to return to pre-pandemic levels, he added. Consumer spending also rose nearly 2% in July.
While COVID-19 has created short-term disruption and altered business and leisure routines, trends prevalent today may not necessarily remain in place for the longer term, according to Bernhard Krieg, managing director and portfolio manager on the real estate equities team for Brookfield’s Public Securities Group.
Krieg noted that a valuation shift between growth and value-oriented stocks was already evident before the pandemic and has diverged further since then. However, “to a certain degree these trends are not permanent, in our view,” he said.
“It’s easy sometimes to extrapolate the most recent trends and think they will not change materially…It’s our view that we are going to revert back to normal and investing globally gives us some important perspective on some of the markets where the pandemic has subsided,” Krieg said.
The economy continues to experience a high degree of uncertainty, but operating performance across the REIT industry indicates that there could be some upside potential in the year ahead, said Nareit Senior Economist Calvin Schnure.
On the economic front, positive figures for housing starts, existing home sales, and the homebuilders’ survey have been tempered by high jobless claims, soaring mortgage delinquencies, and a wave of bankruptcies.
“The bottom line right now is that the economy is struggling to get back on its feet. It’s making some progress, but it’s going to continue to struggle so long as the COVID-19 virus remains uncontained,” Schnure said.
After spending much of the second quarter in a defensive mode, VICI Properties Inc. (NYSE: VICI) is now actively looking for ways to opportunistically deploy capital, says CEO Ed Pitoniak.
Speaking on the Nareit REIT Report, Pitoniak said that once VICI began to receive signals that its assets, particularly those in regional markets, were going to reopen strongly following COVID-19 shutdowns, “we felt confident enough to go back on the offensive.”
In mid-June, VICI announced it had agreed to provide a $400 million mortgage loan secured by the Caesars Forum Convention Center in Las Vegas and had also agreed to acquire approximately 23 acres of undeveloped land parcels adjacent to the center of the Las Vegas Strip for approximately $103.5 million.
Retail sales data for July point to a resumption in consumer spending, providing a boost for the retail REIT sector that has been under pressure throughout the coronavirus crisis, according to Nareit Senior Economist Calvin Schnure.
Retail sales rose 1.2% in July. While the increase was slower than that seen in the previous two months, sales rose to a level that was higher than before the crisis. Schnure noted that this is the fastest in history that retail sales have ever fully reversed the decline that occurred during a recession.
“This is good news for the retail REITs in the months ahead, that we’re seeing the retail spending coming back,” he said.
Boston, San Diego, and San Francisco continue to attract the lion’s share of life science venture capital investment, but strong industry tailwinds are raising the prospects for a number of other markets across the nation, according to Audrey Symes, director of research for healthcare, life sciences, and advisory at JLL.
Speaking on the REIT Report, Symes noted that even before the coronavirus crisis, the life science sector was at a point where many years of research and development were starting to bear fruit, including less expensive and more accessible gene mapping and personalized medicine.
“Life science was on an upswing, regardless,” Symes said, with venture capital inflows into the sector reaching a peak. “The stimulation from Operation Warp Speed and biomedical advanced research and development authority from the federal government is just adding fuel to the fire,” she said.