look back to the Great Recession . During that time , the average recorded delay for multifamily projects was about four months , while other sectors averaged about six months . Needless to say , the combination of a shut down in activity , lack of construction being designated as “ essential ,” supply chain disruptions , and laborers actually becoming ill will increase COVID-19 delays . Additionally , some projects , especially those in very early stages , may never make it to market or may make it with significant changes in scale and design .

LONG-TERM EFFECTS An abundance of theories have been posited regarding the upcoming pandemic-induced structural shifts — away from density , toward remote work , and out of brick-and-mortar , for example . While the pandemic has surely increased the pace of some trends in CRE , we do not anticipate the extreme outcomes some are predicting . New York and San Francisco , as well as other centers of density , are showing the greatest levels of rent and vacancy stress . Undoubtably , short-term pain will continue in these areas as the economy sorts itself out . Also , during the last decade both metros have experienced gains to inventory in submarkets in and around their densely populated central business districts . Further , the pipeline is still active . Combining fallout

Following shifting capital will be a great indicator for developer sentiment .

from the pandemic in terms of residential and business location preference shifts away from the CBDs with the growth in inventory , vacancy levels are primed to rise in those areas . As time progresses , we anticipate developers to shy away from some of these centers until uncertainty diminishes and confidence builds that young adults , empty nesters , and immigrants will still crave city life , and that corporations will still find productivity to be highest in dense areas .

Economists often point to uncertainty as a major cause in a reduction in economic activity , especially with long-term investments like CRE . We are currently in one of the most uncertain times of the past few generations . Interestingly , if developers are unsure about

urban centers , then capital , which is still available , may flow toward industrial and / or more suburban and Southern multifamily projects . Following shifting capital flows will be a great indicator for developer sentiment . Additionally , we also anticipate construction activity and available capital to go toward renovations , retrofits , and conversions . We are already seeing changing office layouts , some building repurposing , and a shift in apartment design toward convertible common areas that grant separate work-from-home spaces .

To conclude , a packed pipeline of CRE projects has been delayed but not cancelled . The new supply along with demand uncertainty will push vacancies up and rents down across all property types , except distribution and warehouse ( outside of a severe recession ). Mid- to long-term changes in the placement of projects and the style of projects are likely , but many developers are in a holding period , waiting to see the magnitude of change related to household and business migration , office space needs , and consumer shopping habits .

Victor Calanog , PhD , CRE Chief economist at Moody ’ s Analytics REIS

Thomas P . LaSalvia , PhD Senior economist at Moody ’ s Analytics REIS

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CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 13