The Weekly Briefing - April 27th, 2020

The Weekly Briefing – April 27th, 2020

Insights from the Bridge Research team.


In This Week’s Brief

  • Construction activity in Bridge office markets
  • Multifamily construction activity slowing, a reversal from late 2019
  • Rethinking the office environment
  • Paycheck Protection Program (PPP) overly benefiting states least affected by the virus

Market Notes

Office Construction Activity in Bridge Markets—Will Demand Win the Day?

With high levels of office construction relative to existing supply, the Bay Area and North Carolina are likely to face headwinds in weathering the economic crisis despite lower-than-average vacancy levels. The question is whether demand will win out as these markets have strong fundamentals up to now. These markets have benefitted from robust job growth in recent years in industries less vulnerable to the impacts of social distancing and safer-at-home guidance, such as technology and finance.
  • In addition, the pace of pre-leasing activity at under-construction projects in these markets tracks with the national figure or exceeds it, which will dampen the amount of inventory actively competing for tenants.

Office Under Construction as a Share of Inventory & Vacancy Rate as of Q1 2020 (CoStar):

Office Under Construction

Multifamily Construction Activity Slowing, A Reversal from Late 2019

Starts of buildings with five or more units—including both for-sale and rental properties—dropped 17.0% on a seasonally adjusted basis to 508,000 during February, prior to pandemic-related difficulties that have further undermined construction activity. The decline represents a reversal from late 2019 when multifamily starts registered strong gains.
  • An NMHC survey in mid-April of leading multifamily construction companies found that 56% of respondents were experiencing delays because of the current crisis. Of those, approximately 77% were experiencing issues with permitting.
  • Availability of labor was the next most frequently cited issue; 44% of respondents said their workforce was affected by spread of illness or stay-at-home orders.
  • Only a quarter of the surveyed companies reported difficulty in obtaining materials—with cabinets and countertops the most common problem—but 87% said prices for materials had increased.

Rethinking the Office Environment

Although the end of stay-at-home orders and remote work remains a distant prospect in much of the country, conversations around adapting the workspace to new realities are already taking place. For example, Cushman & Wakefield has launched the 6 Feet Office Project, which is intended to normalize social-distancing guidelines within the workspace.
  • Coworking operators may face the biggest challenges in adapting given high densities of workers and open-space designs now being discouraged by health officials. CoStar reports that WeWork is planning to modify seating to reduce capacity and foot traffic, mark floors with social-distance guidelines, and add hand-sanitizing stations.

Paycheck Protection Program (PPP) Overly Benefiting States Least Affected by the Virus

An analysis of approved PPP loans as a percent of small business payrolls by Moody’s Analytics indicates the initial phase of the PPP funding has been disproportionately allocated to the central part of the country where outbreaks have been smaller. As a result, small businesses in hard-hit areas such as New York, California, and Washington continue to face severe difficulty in obtaining needed funds, which could lengthen the recovery of local economies in those areas.
  • The majority of states with a large Bridge footprint have seen lower levels of PPP support compared to the national figure, which comes to 12.6% of small-business payrolls. Exceptions include Utah, Georgia, and Texas, where PPP financing is equivalent to 15.4%, 13.5%, and 13.4% respectively of state small-business payrolls.

Approved PPP Financing as a Share of Small-Business Payrolls:

Disclosures and Disclaimers
This is a general analysis of the real estate market prepared by Bridge Investment Group LLC (“Bridge”) and is not related to any specific products or services of Bridge or any affiliate. Sources for statistics and other factual data included herein are maintained by Bridge Research. Such data has not been verified by Bridge and we can give no assurance that it is accurate or complete. Statements contained herein that are nonfactual constitute opinions of Bridge, which are subject to change. Financial projections contained herein are estimates only and are based on assumptions, including assumptions regarding future rent growth, the availability and cost of financing, changes in market capitalization rates, and various micro- and macro-economic trends. No assurance can be given that either the projections or the assumptions will prove to be accurate. Investment in real estate involves substantial risk of loss.
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