Economists: COVID-19’s impact on retail real estate will be more severe than in 2008

The Urban Land Institutes latest Real Estate Economic Forecast shows that investors have less to worry about than they did during the recession of 2008 — unless they happen to have large holdings in hotels or retail. 

The overriding sentiment of the 39 real estate economists and analysts surveyed by ULI was that the COVID-19 pandemic would have a much less severe impact on real estate fundamentals and values than during the Great Recession outside of those two sectors.

“Among real estate indicators, only retail and hotel are expected to suffer a worse outcome, while most property type returns and market fundamentals will perform much better than they did during the Great Financial Crisis,” said ULI leading member William Maher.

Commercial real estate price growth is projected to fall by 7% in 2020, less than the 13.6% and 20.8% declines in 2008 and 2009. Economists believe that one reason for this is that more debt financing is expected to be more available than it was during the earlier financial crisis.

Industrial and residential rents are expected to grow by 2.2% and 1%, respectively, in the coming three years. Meanwhile, retail rents will drop 3.1% and hotel revenue per room will fall 5.3%.