Imagining the Hospitality and Hotel CRE recovery

One of the hardest pandemic-hit sectors in the last 12 months is travel and tourism, a space with significant overlap with commercial real estate (CRE). For those who trade in and invest in hotels and hospitality CRE, it has been a dark time – and sadly analysts aren’t promising a rapid bounce back. Rather, we are hearing estimates in the region of two to three years for a return to pre-Covid-19 levels – or longer, if major markets are affected by further “waves”.

Economic Impact

According to research by Northern Trust, tourism and travel are worth an estimated 10% of global GDP, and provides jobs for 330 million people. Forecasts from Oxford Economics and the United Nations World Tourism Organization (UNWTO) in 2020, predicted that international arrivals would drop by “over 70%, contributing to about 200 million job losses”.

That was their “worst case scenario” last year, but with multiple waves of this health crisis still being felt around the globe, the final impact is still to be assessed. 

Sector specifics

There are many things contributing to this, not least of all the correlation between travel and the spread of the coronavirus. Because this link was so immediately clear, international travel was all but shut down in 2020, and for many countries that remains the case with borders closed for anything other than essential travel.

As investors at Northern Trust explain, hotels are a “highly cyclical sector that experiences an overnight collapse in demand”. That speaks to the viability of tenants and operators in tough times, as well as the investment prospects that flow thereafter.

The acceptance for work-from-home will also keep more business travelers away and for longer, so areas that have economies built on conferencing and eventing are unlikely to see an uptick in business soon. Tourism recovery will, instead, start in cities that have clear pandemic-mitigation measures in place and those that can promise a safe “bubble” for tourists.

Looking forward for sustainability

On a more positive note, commentators have made the point that this is an opportunity to reset in many ways – shifting towards more sustainable tourism and hotel development practices. Deals with clear environmental, social and corporate governance (ESG) principles will sweeten the deal for investors.

Outliers and options

A handful of destinations are expected to buck the trend, with sharper tourism increases, and a swifter hospitality CRE recovery in conjunction. Parts of Australia, for example, are already seeing a shift towards new inventory.

Hotel shares movements also reflect optimism. As Million Acres reports, “As of March 19, 2021, Park Hotels and Resorts (NYSE: PK) was up 33.4% YTD, Pebblebrook Hotel Trust (NYSE: PEB) 35.4%, and Hersha Hospitality (NYSE: HT) up 47%”.

“That makes a good case for real estate investment trusts (REITs), says Steven Vazquez, NAI Global Capital Markets Hotel Expert, “and shows a willingness to buy in now as people think the bottom was reached and things looking up.”

What’s happening in… Seoul, Korea?

A quick reminder to NAI Professionals and clients: NAI Global’s reach is, well, global. We are proud of all NAI Offices around the world as well as their regional and local insight. For today’s edition of the ‘What’s happening in…’ blogs, we turn our attention to Seoul, the capital of South Korea – and specifically its office real estate vertical.

Located in the north-west of the country, Seoul is home to some nine million people (including over 400,000 non-nationals), and is the largest city in Korea. It is strongly associated with technology, finance, and business, and some 14 companies from the Fortune Global 500 are headquartered here, including Samsung, Hyundai, and LG.

Changing lives

In Seoul, our local experts and partners describe a commercial real estate (CRE) and office space environment that is relatively stable despite the hardships of the Covid-19 pandemic, with a limited amount of new supply expected to come on to the market in 2021. In early Feb 2021, Korea, as a country, had some 80,000 infections and a death toll of 1464, and Seoul was a key concern for pandemic management because it is such a densely populated city.

Still, there have been considerable social and work-life changes in Seoul as a result of the pandemic. The Korean Herald reports that residents of Seoul worked less and relaxed more during 2020. This comes from the findings of a city government survey that shows a 12-minute decline in daily working time compared to 2019.

Seoul itself offers a vibrant and diverse community, and it is a regional center of economic activity, in easy travel distance of many of Asia’s highlights. Industrial action has however led to a decline in working days, and tourism has been greatly slowed by Covid-19 fears. As the vaccination efforts roll out, these are some of the economic areas where analysts are hoping for a recovery in 2021..

Latest data

Despite the pressures of lockdowns and distancing, 2020 was reportedly a record-breaker year for office investment volume. Analysts suggest that this is underpinned by a healthy investor appetite for stable real estate assets and see Seoul as offering this.

According to the NAI Korea [HM1] monthly data analysis focusing on its market, published in January 2021, the average vacancy rate of office buildings in Seoul’s central business district (CBD) is 7.62%, with the average net occupancy cost (NOC) at $52.39 as of December 2020. NOC is the cost that 1㎡ of gross floor area incurs to a tenant who rents the property. NOC can be useful to compare different types of office buildings.

On the residential side, driven by low supply, there has been strong growth in prices, and this is likely to see policymakers relaxing some restrictions.

For a detailed breakdown of NAI Korea’s Seoul data, click here.


Simpler Times

By Alec J. Pacella for Properties Magazine, March 2021

This month marks an anniversary of sorts. I’m sure you can remember exactly what even made you realize that COVID-19 was going to be a much bigger deal than originally thought. Most likely, this event happened sometime in the first two weeks of March 2020.

For the complete article, click here.

Click-to-collect and e-commerce: a windfall for CRE

Pivoting from in-store sales to tech-enabled sales was one of the saving graces of retail in 2020 when stores emptied out, and shelter-at-home orders dragged one. The data now shows that companies and markets better positioned to shift to e-commerce fared better than those that didn’t. 

The upside to shifting sales online, though, was that it contributed to a longer holiday shopping season, and drove record-breaking extension in e-commerce market penetration, with some reporting as much as 70% e-commerce sales growth last year. 

When a door closes…

On the commercial real estate (CRE) side of the retail coin, it has also driven demand for warehousing, fulfillment, and shipping spaces – a shift that creates an opportunity for a savvy agent or broker. 

…A warehouse opens

The World Property Journal, for example, reports that 99.2 million square footage of industrial space was taken up in the last quarter of 2020, making it the strongest quarter on record. Some 203.7 million square feet were absorbed during the course of the year, which is 27% up on 2019’s net growth.  

This overview perspective echoes the reports coming from regional data, such as in Wisconsin, as well as abroad in the UK and Europe, and Australia. According to Bizjournals.com, in Southeast Wisconsin, the industrial property market in 2020 took up square footage equal to that of all the new builds coming to construction completion in the area. 

In the UK, FM Magazine reports, that available space is outpaced by demand, and this is tricky at a time when companies will have to manage their supply chain very carefully due to Covid-19 and ‘Brexit’. 

Standing out

This kind of growth is a beacon of light in the otherwise dismal statistics of 2020, where economies around the world took huge strain – but it also draws attention to itself, which means more competition too. 

“Just because you have industrial or warehousing space on your books, don’t assume it’s a done deal,” cautions Jay Olshonsky, President and CEO of NAI Global. “Some companies are also cautious and risk-averse at the moment, so you’ll have discerning clients looking for only places that fit their needs and not every warehouse building will do that.”

At this point, analysts generally expect this trend to continue into the second quarter of 2021, although the growth line may flatten out somewhat as we begin to see a stronger return to in-person shopping in Q3 2021.

Data demonstrates 2020’s brutal construction slump

The Real Estate Board of New York (REBNY) confirmed this week that construction activity on New York City’s Manhattan Island had – predictably – slumped in 2020, to almost its lowest level in a decade.

The World Property Journal detailed the findings of REBNY’s Q4 2020 New Building Construction Pipeline Report, highlighting that “new building filings in 2020 represented a proposed 42.67 million construction square feet, which is an approximately 28% decline compared to proposed construction square footage in 2019”. This was, the report said, the lowest total since 2012.

Residential units proposed for construction in 2020 declined by roughly 17% compared to 2019, the report found.

Promising plans

The study, however, is not all ‘doom and gloom’, stating: While this new analysis highlights the ongoing challenges faced by the construction industry due to the devastating impacts of the Covid-19 pandemic, it also follows some promising recent infrastructure and construction plans being put forth.

Global effects

These sectors are important job creators around the world, and many states and countries are still counting the costs of the ongoing pandemic:

  • A new report by the Associated General Contractors of America shows that Texas had the sharpest construction jobs loss decline in the US shedding 33,600 building industry jobs in December, compared to the same period the year before, according to Dallas News.
  • In Northern Ireland, says the Irish Times, data indicates “firms reporting a deterioration in profit margins outnumbered those reporting an improvement by 11 to one”.
  • London’s Southwalk Council is calling on construction workers to participate in their rapid testing project, as the UK government begins rolling out vaccines to those that cannot work from home.
  • And ConstructionCanada.net is reporting that both construction jobs and the economic recovery of Ontario is at risk if their government doesn’t bed down the post-pandemic “restart” agreement and plans for financial assistance. This comes from the Residential and Civil Construction Alliance of Ontario who say municipalities will have to scrap repair projects if funds aren’t forthcoming.

“The ramifications are ongoing,” says Jay Olshonsky, President and CEO of NAI Global, “A set-back like this is painful, but if we’re looking for silver-linings it does give the industry pause to consider how it can return stronger, in sustainable and greener ways.