The long, hot summer of 2020 just added to the misery index in Arizona. The state has managed to still move forward with many new developments, and the pace of building has remained steady. There are signs all around the Phoenix market that this COVID-19 induced economic downturn will be a short-lived one when compared with what occurred in Arizona just over 10 years ago.
Leading that recovery will likely be the industrial and office markets. As companies return to normal operations in the post-COVID era, there are indications that more space will be needed for office workers, not less, which could create opportunities for office developers. Industrial developers never really stopped launching new projects, even in the midst of a historic pandemic, and there are still companies actively looking to move and build new operations centers in Arizona.
AZRE Magazine posed questions to a roundtable of NAIOP Arizona members, looking for their thoughts on the market, how it will look coming out of the pandemic and where the real estate opportunities are for those ready to take the lead in our economic recovery.
DF: Derek Flottum, Vice President of Development, Irgens
JWe: Jim Wentworth, Principal, Wentworth Property Company
JWo: Jeremy Womack, Senior Managing Director, Capital Markets, JLL
KM: Kate Morris, Senior Vice President, Healthcare Services, Transwestern
DP: Darren Pitts, Executive Vice President, Velocity Retail Group, LLC
CR: Candace Rosauro, Director of Business Development, Layton Construction
AZRE: What do you think the economic recovery will look like, and how long will it take? What sectors do you expect to recover first, and which will lag?
Darren Pitts
Candace Rosauro
Jeremy Womack
DP: We expect the remainder of 2020 to have continued overall uncertainty. We are still in the thick of COVID-19, civil unrest, and an election year — which all mix together to create a level of uncertainty for many corporate decision-makers. In 2021, we are anticipating more stability. This will be fueled by the hope that a vaccine for the virus gets closer to the finish line. As far as our commercial sectors are concerned, industrial and multi-family sectors, which have experienced very little slow down during the COVID shut-down will remain the strongest coming into 2021. Single-family residential is also maintaining a strong performance in Arizona as the lack of resale inventory is driving new home sales even higher. Through April, new housing permits were up 24 percent on a year-over-year basis. Office will be looking for innovation to help pave the way as office occupiers find their business models shifting with many employees working remote part time and full time. For retailers, we will continue to see more consolidations of concepts, as well as opportunities which focus on drive-thru models to expand.
JWo: The U.S. economic recovery will remain disjointed in nature with starts and stops until a meaningful COVID-19 vaccine and therapeutics are developed and distributed widely.
Unfortunately, there will continue to be market winners and losers along the way. Medical, healthcare, food and beverage, re-shored manufacturing, e-commerce, third-party logistics and other “essential” industries will sustain or flourish while non-business travel, crowd-centric public activities and related events will remain challenged.
KM: Once a vaccine is in place, we expect pent up demand for health services and surgeries to keep providers busy until the backlog is caught up, estimated at 9–12 months.
CR: I think the recovery speed will be in phases, but will also depend on how long the shutdown lasts. From a construction standpoint, recovery will lag similar to what happened after the Great Recession. The market segments we expect to recover more quickly include data centers, due to the increase of employees working from home, as well as distribution centers such as “last-mile” facilities. The sectors that will lag are those that are dependent on tourism, such as hospitality, retail, and entertainment.
Jim Wentworth
Kate Morris
Derek Flottum
JWe: I think industrial, self-storage and medical will be more recession resistant this downturn. Office and retail will lag by a year or more due to the amount of vacancy and timeline for normal behavior to recover. Unfortunately, a vaccine will dictate the timeline for recovery and when people will feel comfortable getting back to normal.
I think the recovery will take time with starts and stops as we have seen with the COVID response. Despite our current trends related to the virus, I believe over the long run the United States will remain the most attractive international location to invest capital. Nationally, I think there will be geographic winners and losers. Markets…
Read More: Here’s where experts say the real estate opportunities will be post-pandemic