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High Hopes That a COVID Vaccine Will Help Businesses Generate Income Once Again
January, 2021
by Karl Niehaus, President, CREI
Economic Overview:
AS THE VIRUS PEAKS WITH RISING UNEMPLOYMENT, residents are fleeing dense areas and downtowns into suburbs which is pushing up home prices in LA. Moving away from dense areas and the loss of income/employment have had significant impacts on rents. Apartment rents have declined most dramatically in expensive areas where rents have fallen roughly 7% YTD. 140,000 jobs were lost in December 2020 alone which means there are over 9 million fewer jobs now than in December 2019. The virus is still the most significant factor in the economy with cases surging at the end of the year, resulting in a massive slowdown in the economy. Trade out of the LA ports is down over 7.5% from one year ago. With the virus peaking, the question is how much more damage will be done?
Commercial Overview:
CHALLENGING TIMES LIE AHEAD as real estate faces significant challenges. Less disposable income has decreased spending and this is largely due to increased unemployment, clients staying at home and not generating in store sales. Some businesses have obviously benefited from this, like online businesses, but the hardest-hit sectors of the real estate market are businesses that cannot operate from home. Jobs in the leisure & hospitality, food & beverage, and entertainment sectors were hardest hit. Landlords of those businesses have struggled with vacancies and unpaid rent. In addition, some $430 billion in real estate debt matures in 2021 and up to $126 billion in commercial real estate could sell at distressed prices, according to Bloomberg, which will have a big effect on real estate values. Increased inventory and struggling tenants will cause some properties to lose value. Hopefully, they can get the vaccine out as quickly as possible so businesses can generate more income to be able to pay rent again.
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