Commercial Real Estate Outlook Post-Pandemic: Navigating the Re-Opening

The pandemic changed life for so many people, as employees shifted to a work from home model and schools or other businesses temporarily shut their doors. In the past few months as vaccines have rolled out across the country, businesses are reopening and the world is beginning to return to normal. This new normal gives us a chance to reflect on the commercial real estate outlook and how investors may be able to navigate the re-opening. Recently, Robert Brunswick, co-founder and chairman of Buchanan Street Partners, took part in a webinar Q&A with Financial Advisor Magazine, discussing commercial real estate investing as we come out of the worst of the pandemic. Here’s a brief overview of the highlights of the webinar.

What’s different today in the real estate markets than during the Global Financial Crisis?

The Global Financial Crisis or GFC brought a crisis of liquidity vs today’s market which is awash in capital. Significant capital was raised and has been on the sidelines pre-pandemic and even during the pandemic in anticipation of certain opportunity and distress.

Real estate capital flows have also certainly benefited from the anemic returns of the fixed income market as investors seek predictability of cash flow. When I first entered the business, most institutions sought to allocate between 2-3% to real estate vs today allocation goals approach closer to 10-15% further increasing this liquidity pot.

The other big variable today is the government’s intervention, which has been much more decisive and impactful than during the GFC era.

How has the pandemic impacted real estate in the short run, and how has it impacted long-term views?

You can’t remove a chunk of demand for office and retail and travel and hotels from the global economy without having it impact all industry, specifically real estate. The short-term impact has been hard to ignore, but it has led to an overall evolution of the market. As we enter into a rebound and recovery phase, the way real estate is viewed and used may change. Spaces may be adapted to different uses in the future than they were designed for in the past.

How will the work from home trend impact commercial real estate and office buildings in particular?

People are beginning to return to the office, but after more than a year of working from home, many people have started questioning the effectiveness and functionality of office spaces. As people shift into a hybrid work model and there is a reduction in office use, the three C’s need to be considered for all office spaces: collaboration, culture and competition.

As we work through the pandemic, what is the sense for where we might be from a real estate cycle standpoint?

Cycles have always impacted real estate… be it the S&L Crisis, Tech Wreck, or Housing Crash. This pandemic has no doubt impacted us in the short run but has felt more temporary from the start tied to the coronavirus and thus might not warrant a cycle title. Certain non-performance of aspects of real estate were underway pre-pandemic… the pandemic simply accelerated obsolescence and new usage paradigms. For the most part, real estate asset values have begun to dramatically reverse early pandemic write-downs… though this hasn’t yet shown up in the data and based on our own current market experience.

How do most high net worth investors participate in real estate investing, and the pros and cons to using those structures?

Multiple opportunities exist for high-net-worths to place capital in a variety of real estate today be it public or private funds, public REITs, or one-off syndications. Simply said, the pros of funds include participating in a diversified grouping of multiple assets providing a spread of risk discipline. With that, the investor loses the discretion of picking a certain investment. In turn, the one-off syndication allows the investor that discretion but without the portfolio diversification benefits. In both these scenarios liquidity is limited except for certain open-ended investment funds.

For most investors who might not have access to high-net-worth vehicles, the more common way to invest is through REIT stocks although this form of investing is more comparable to investing in the equity market given its liquidity but also correlates to the equity market, so maybe not best suited for a pure real estate allocation.

To learn more about the post-pandemic, re-opening outlook in commercial real estate and hear all of Robert’s thoughts on the topic, watch the full webinar here.