11/17/2020 | by

A Nov. 17 panel discussion at Nareit’s REITworld: 2020 Annual Conference examined the broad outlook for REITs and the economy, with particular attention to the impact of the pandemic on the office, retail, and health care real estate sectors.

Lindsay Dutch, REIT equity analyst at Bloomberg Intelligence, moderated the event. Panelists included: Calvin Schnure, Nareit senior economist; Laurel Durkay, SVP and portfolio manager global & U.S. real estate at Cohen & Steers Capital Management; and Mark Streeter, managing director at J.P. Morgan.

Schnure provided an overview of the macroeconomic backdrop, noting that “we’re not going to have a full-fledged recovery until the pandemic is brought under control.”

For the next three to six months, the economy will be “touch and go,” Schnure said. Beyond that, while there will be some financial damage as a result of the pandemic, the rest of the economy is likely to show a lot more strength than in other recessions of this magnitude, he added.

Durkay discussed the outlook for the office sector, stressing that “it’s not a one-size-fits-all reaction.” Cohen & Steers is estimating that work-from-home will have a negative impact on office demand over the next several years ranging from minus 2%-3% to minus 15%-20%, she said.

At the same time, office densification trends that have been evident during the past decade are likely to reverse in almost every city, Durkay said.

Streeter, meanwhile, said that 2020 REIT bond issuance among the major property types will likely total about $36 billion to $37 billion, which is just under the 2019 level of $40 billion. “We have seen more issuance than we would have thought,” he said.

Turning to the retail sector, Durkay said that while she is still a “strong believer” in the need for physical storefronts and distribution points, there will be an impairment to values as a result of the pandemic as winners and losers in the space emerge. Ultimately, capital will come back into the retail sector, most likely into quality, high-productivity centers, she said.

Schnure pointed out that in larger markets, rising brick and mortar sales will support the need for physical retail locations.

As for health care real estate, Durkay said “you’re going to see a snap-back pretty quickly” as there has not been a permanent impairment to demand. Demographic trends continue to support the sector, she added.

Meanwhile, Streeter discussed the growing popularity of green bonds. “We’ll see more and more REITs looking to allocate into the green bond market,” he said, especially since there is a demonstrated pricing benefit.


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