As the world braces itself for a recession, the uncertainty and volatility triggered by covid-19 has already started impacting commercial real estate performance across a spectrum of asset classes.
In a webinar held Monday, property services firm Cushman & Wakefield analyzed the year-to-date total return performance of US REITs across all real estate sectors, of which co-working showed a 55 percent decline. This estimate, based on stock price trends of various co-working businesses, makes co-working one of the most-impacted real estate sectors.
Retail-focused REITs have recorded a 55.2 percent decline in YTD total return performance so far, while hotels have seen a 67.5 percent drop, given the 70 percent drop in global occupancy levels, according to the property services firm.
Kevin Thorpe, chief economist and global head of research at Cushman & Wakefield, noted that congregating and sharing dense space is the opposite of what social distancing is all about, which explains the sharp drop in the co-working sector’s performance.
Some of the biggest co-working companies have closed their locations in the past two weeks, in line with US and Europe businesses implementing work-from-home orders to curb the rapid spread of covid-19. On March 13, co-working startup Wing, whose space caters to women, announced all of its 11 branches in the US and London would be closed until at least March 31. Meanwhile, Convene has closed all of its meetings locations until April 1.
However, Thorpe was also hopeful about the fate of co-working spaces once a sense of normalcy returns.
“Co-working may come out of this okay. Flex space may be a good way for occupiers to navigate the near term before moving forward with longer-term leases,” he said.
Meanwhile, overall US office leasing fundamentals have also started exhibiting downward momentum, even though March was the only month seeing covid-19-related disruption in the first quarter. According to preliminary data shared by Cushman & Wakefield, net absorption dropped, and vacancy levels slightly increased in Q1 2020 versus Q1 2019.
But Thorpe also added that the strong fundamentals of the commercial real estate sector, minimum over-building and over-leverage use should lead to a faster recovery.
“Overall, the commercial real estate market had momentum going into the crisis,” he said. “There was rent growth in most markets, there was a good equilibrium in occupancy for landlords and tenants, and property values were rising in an orderly fashion. We should take some comfort in knowing that we entered [the crisis] on a solid footing, which should make for a quicker return to normalcy.”