Economic Impact of Coronavirus on Real Estate and Investment

Economic Impact Coronavirus

As of March 30th, 2019, Covid 19 (AKA the Coronavirus), has infected more than 766,000 worldwide across 200 countries and territories. This has caused roughly 36,500 deaths, although the number of deaths and infected is estimated to be much higher, particularly in nations with high populations with inadequate testing, like the United States of America. Furthermore, many deaths occur not because of Coronavirus but because medical services, in general, have become more scarce as resources are directed to combat the pandemic. The pandemic will also take a significant toll on many American’s mental health, the effects of which are also difficult to measure.

The virus has also led to widespread unemployment. In America, for example, on March 26th, The Washington Post reported that 3.3 million Americans filed for unemployment benefits. The figure represented the largest increase in claims in history, more than triple the previous record of 695,000 set in 1982. Many economists fear that 40 million Americans will lose their jobs by April.

This doesn’t take into account the amount of revenue lost by measures such as shelter in place, social distancing, and bans on large gatherings, which in and of themselves make shopping difficult and, as a result, discourage individuals from entering brick and mortar stores. Lastly, there is the impact of delivery services displacing trips to physical locations.

Add it all up and you end up with the widespread social and economic disruption. The question for both real estate investors and non-investors alike is how best to navigate the new normal. The answer to that question varies based on the industry you’re in.

Coronavirus impact on manufacturing

In the US, manufacturing provides work to 12.9 million people nationwide. The following 10 metropolitan areas derive 12% or more of their jobs from the manufacturing sector, which entails the mechanical, physical, or chemical transformation of materials into new goods. Supply chain disruption, the necessity to work in close proximity with others, shortages of personal protective equipment (PPE) such as masks, as well as decreased demand has given general shortages of disposable income may lead to drastic work shortages and/or stoppages. Additionally, how the local and federal governments respond to the pandemic in these regions will inject instability as well.

Metro Area Employed in Manufacturing (%)
Detroit, MI 19.04
San Jose, CA 16.97
Milwaukee, WI 16.80
Cleveland, OH 14.57
Louisville, KY 13.96
Cincinnati, OH 13.62
Minneapolis, MN 13.53
Orange County, CA 12.84
Indianapolis, IN 12.51
Portland, OR 12.45

(Source: BLS, Pitney-Bowes, Investment Data Science)

Coronavirus impact on hospitality and entertainment

Unless you provide food delivery or take-out, then your hospitality and entertainment business is closed. That means restaurants, bars, movie theaters, shows, theme parks, gyms, and casinos. To be more specific, that means places like Disneyland, Chuck E Cheese, every AMC in America, and very many businesses in Reno and Las Vegas have shuttered their doors. That’s a lot of people without an income stream! Here are the top ten cities affected by these closures.

 

Metro Area Employed in Hospitality and Entertainment (%)
Las Vegas, NV 28.70
Orlando, FL 17.77
Reno, NV 16.78
New Orleans, LA 12.71
Palm Beach, FL 11.95
San Diego, CA 11.89
Miami, FL 11.39
Fort Lauderdale, FL 11.24
Los Angeles, CA 11.15
Orange County, CA 10.97
New York, NY 9.09

(Source: BLS, Pitney-Bowes, Investment Data Science)

Coronavirus impact on travel

Thanks to shelter in place measures and bans that forbid travel between states and nations, travel has come to a near halt. Airlines, in particular, are taking a huge hit. The US airline industry employs over 10 million people and is worth $1.7 trillion. The economy just around airports themselves, as provided by the passenger boarding metrics from the Federal Aviation Administration, is $15.5 billion. This table represents the metro areas most directly impacted by the COVID pandemic. It doesn’t include the amount spent only on tickets; only the amount spent on the airports themselves.

Top-10 major airport economies will have a significant impact on the revenue shown here:

 

Region Passengers Revenue
New York region 68,476,872 $1,182,595,579
Los Angeles region 53,004,925 $915,395,055
Atlanta 51,865,797 $895,722,314
Chicago region 50,551,945 $873,032,090
Bay Area region 41,510,171 $716,880,653
Dallas-Fort Worth 32,821,799 $566,832,469
Denver 31,362,941 $541,637,991
Houston 28,211,284 $487,208,875
Seattle 24,043,494 $415,231,141
Las Vegas 23,795,012 $410,939,857

(Source: faa.gov, USFunds.com, Investment Data Science);  closer airports combined into a region

Coronavirus impact on retail and wholesale business

Most retail and wholesale businesses have shuttered their doors. Pharmacies, grocery stores, and, in some places, liquor stores remain open. Some stores have seen their shelves cleared of certain items. Below you will find the locations where 15% of the workforce derives its income from retail or wholesale businesses. These businesses may see further disruption thanks to online retailers like Amazon, as well as work stoppages as employees protest what they consider to be unjust business practices.

 

Metro Area Employed in Retail and Wholesale Business (%)
Fort Lauderdale, FL  16.94
Miami, FL  16.15
Riverside, CA 16.14
Palm Beach, FL 15.70
Reno, NV 15.41
Charlotte, NC 15.40
Tampa, FL 15.34
Memphis, TN 15.26
Yakima, WA 15.23
Orlando, FL 15.19

(Source: BLS, Pitney-Bowes, Investment Data Science)

Opportunities in real estate

As the stock market continues to be volatile, many will seek stability in real estate. In particular, converting single-family homes into rental properties, or investing in corporations or REITS that manage such endeavors. Some cities will be hit particularly hard by the pandemic. From these tables alone we can identify that several cities will be suffering in more than one broad category of employment:

  • Fort Lauderdale (Hospitality, entertainment; retail, and wholesale)
  • Palm Beach (Hospitality, entertainment; retail, and wholesale)
  • Reno (Hospitality, entertainment; retail, and wholesale)
  • Las Vegas ( Hospitality, Entertainment; Travel)
  • Los Angeles ( Hospitality, Entertainment, Travel)

Fort Lauderdale and Palm Beach real estate investment

In their Emerging Trends In Real Estate® in the United States and Canada for 2020, Price-Water House Cooper (PWC) identified several of these markets as being particularly friendly to investors. Both Palm Beach and Fort Lauderdale, which are separated by roughly 50 miles, were highlighted for their recent growth. Fort Lauderdale was singled out for its “commercial/multifamily downtown skyline “. Both will suffer under shelter in place conditions, although West Palm beach, which enjoys a vibrant restaurant scene, may do a little better given that takeout and delivery are still permitted during shelter in place conditions. Regardless, Fort Lauderdale derives a combined 28.18% of its industry revenue from affected sectors while Palm Beach derives 27.65%.

Palm Beach and Fort Lauderdale, then, will be ripe for investors interested in purchasing single or multi-family homes for the purpose of renting them out. Alternatively, people can invest in corporations or REITs who invest in such entities. Additionally, the infrastructure and commercial real estate already in place can be easily repurposed for new businesses if previous occupants are unable to survive the duration of the pandemic.

Las Vegas real estate investment

Las Vegas is losing the most money in the field of hospitality and entertainment due to shelter in place. Additionally, the city is losing tremendous money because its airport is no longer serving the large volume of people it usually services. PWC had identified Vegas as a city on the rise because the city had added 180,000 residents between 2010 and 2020. Although, the housing segment to enjoy the greatest increase is apartment buildings, so there are fewer single and multi-family homes to convert into rental properties.

Many industrial zones were in the midst of being constructed to make use of the labor provided by the growing population. That’s less likely to change than PWC’s prediction that office buildings would be moving into territory previously occupied by supermarkets. That’s because working from home during the pandemic has the potential to revolutionize business, with many enterprises forgoing traditional office spaces. Why send people across town or across the country to have meetings if they can be more effectively arranged using teleconferencing?

Reno real estate investment

Reno is suffering due to a decline both in the hospitality and entertainment sector, as well as declines in retail and wholesale. Luckily, Reno was also experiencing growth due to the arrival of several data centers, as well as distribution centers for companies like Amazon, Walmart, and Petsmart. During this time, when people are making more purchases from home and spending more time online and on their phones, data centers, and distribution centers are likely to remain a solid investment. The additional need for workers can be filled with employees from other, nearby industries who’ve found themselves out of work thanks to the pandemic.

Los Angeles real estate investment

LA may be losing a lot of money because people aren’t flying there or treating it as a tourist attraction, but the city remains one of the most thriving cities in the nation. Businesses may go bankrupt, properties may change hands, but LA will remain strong, just as other major cities in America will.

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