On April 28^th, ULI Washington hosted the virtual event “Brave New World: The Economic Outlook and What’s Next for Real Estate” for both ULI members and the general public. Dr. Victor Calanog, Head of Commercial Real Estate Economics for Moody’s Analytics, presented on past, present and future market trends in the real estate industry with a focus towards the ongoing COVID-19 pandemic and its impact on the future.

Dr. Calanog opened the presentation with a focus on economic and health indicators of the greater Washington region, including a breakdown of the ten counties that make up the region. Density and population trends within Washington D.C., Virginia, and Maryland have shown that of the 158 counties that comprise each state and territory, 68% of all identified COVID-19 cases as of April 2020 were within the Washington region. Dr. Calanog suggested that this data combined with healthcare system capacity helps contribute to decision making such as the closing of markets and schools.

Throughout the remaining presentation, Dr. Calanog shared his understanding of current and prediction of future markets through a number of scenarios. These included pre-COVID baseline projections, a “worst case/slump” projection as well as “recession” projection based on Moody’s current expectations of the market place. Dr. Calanog noted that markets had only entered into this period of change in the last few months, and that extrapolating out for future scenarios required a review of multiple projections.

Reviewing property types, Dr. Calanog noted that shorter lease properties would likely hurt the most, predominantly leisure and hospitality. To help illustrate this point, Dr. Calanog compared the D.C. region’s leisure and hospitality market to markets such as Los Angeles, Orlando and New Orleans. While the D.C. region’s impact was expected to be lower than these locations,  it still presented a notable impact to the region. From there, Dr. Calanog reviewed the history and projected demand for multifamily units in the Washington region. Prior to COVID-19, the region expected to create over 300,000 units. In both the “worst case/slump” and “recession” projections, the model showed an increase in vacancies but highlighted pullbacks on construction could have a countervailing effect.  For D.C., a 36.5% supply growth pullback for “recession” and 45.1% pullback for “worse case/slump” means residential vacancies will likely rise, but as much as early projections showed.

Next, Dr. Calanog shared that these projections Office and Retail did not fare as well. With the region’s growing office market, projections showed that this product type would likely have both a decrease in demand and an increase in vacancies. Suburban Maryland could grow from 21.4%, Suburban Virginia from 22.4%, and D.C. from 14.5%. This also raised the question of how office space could evolve to accomdate a future workforce that may have demands for new office stock that supports remote work options, and highlighted a case study of Google’s currently managed square footage of office space and efforts to reduce costs by reducing the amount of space for work and providing tools to employees who work off-site. Dr. Calanog noted that retail product would likely suffer worse than office given the immediate impact of store closures and competition from e-commerce. Victor concluded by sharing Moody’s updated COVID-19 Outbreak: Impact on CRE tool with participants, a free tool for those seeking to learn more about the changes in the commercial real estate market.

In addition to the presentation, participants were able to ask questions to Victor directly using ULI Washington’s virtual meeting tools. On the topic of affordable housing vacancy estimates Victor shared that it was not expected to change as much, but noted that as households move and trade housing stock from more expensive market-rate products it would likely increase the demand for affordable units. When asked about the stock market, Victor responded that it served as a better tool to measure the sentiment of markets than the reality of how individuals interact with said companies. On the subject of Central Business District (CBD) development and “edge cities” like Tysons,  Victor felt that CBD’s were still valued for access to other amenities and was not certain that businesses in these locations would relocate to more suburban spaces.

ULI Washington thanks Dr. Calanog for sharing his time with our District Council. Click HERE for a recording of this webinar on Knowledge Finder.  Please click HERE to view Dr. Calanog’s presentation slides.  If you are interested in accessing these materials and ULI’s greater library of resources, further information on ULI Washington Membership can be found here.