March 27, 2020
Some acquisitions and dispositions of considerable size have been reported in Connect Media’s daily news since the spread of the coronavirus across the U.S. began increasing momentum earlier this month. Those deals had been in the works for some time, and their inclusion in first-quarter tallies will likely make Q1 appear stronger overall than more recent deal velocity might suggest.
With this in mind, a new NKF report broadly surveying the impact of COVID-19 on commercial property sectors hopes to draw lessons from the pace of transactions in other parts of the world, as the virus began spreading in those regions.
“Commercial real estate sales activity across all property types declined 50% in the Asia Pacific region during the first eight weeks of 2020—as the virus was spreading rapidly—compared with the same period in 2019,” NKF says in the report prepared by Alexander Paul and Jonathan Mazur, citing data from Real Capital Analytics. The decline in Europe for the comparable period was 18%.
“In the Americas—where the coronavirus was not fully recognized as a major threat until late February—transaction volume was up 10% during the first eight weeks of 2020,” the report states. “This suggests that a decline in U.S. volume will be recognized in second-quarter data.”
In the meantime, NKF reports that the debt market’s low yields still represent an opportunity for investors, even as some lenders have begun pulling back. “Well-capitalized investors are in a strong position to buy,” the report states.
For now, NKF says, sales transactions that were near closing continue to move forward, “but deals in the early stages are on pause. Existing stabilized properties with good tenancy likely will be less impacted than properties with significant vacancy. There will be imbedded added risk in the discount rate and underwriting projections in the near term.”
Longer term, NKF suggests that the financial implications of the COVID-19 crisis “could more closely resemble those from other non-financial disruptions, such as the terrorist attacks of 9/11 or weather-related events such as Superstorm Sandy in the New York area, than they do the financial crisis of 2008. However, this is still a fluid situation.”
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