As Global Economy Is Rattled By Coronavirus, Industrial Players Weigh If Their Business Will Be Hurt Or Helped
Around the world, businesses, communities and politicians are grappling with how the rapidly spreading coronavirus may reshape day-to-day life. Now, industrial real estate players are considering the impact of any major supply chain disruptions and outbreaks on their operations.
Global stocks tumbled after President Donald Trump announced a travel ban on most of Europe. The restrictions, in place for the next 30 days, do not apply to goods, the president clarified after his Oval Office address. The S&P 500 fell 7% Thursday, causing a U.S. trading halt for the second time this week.
There have been more than 1,300 cases of COVID-19, the disease caused by the novel coronavirus, detected across the country, according to the Centers for Disease Control and Prevention. Some cities have moved to ban public gatherings, professional and college sports leagues have suspended their seasons, and companies and schools have sent workers and students home.
Uncertainty abounds, and industrial players are considering how their businesses and industry will be affected. While some predict a jump in online shopping — a good news story for those kind of assets — supply chains could be severely strained, too.
“This is going to be something like nothing we’ve experienced in our lifetimes. No one industry will be spared, but we can’t let fear stop us. It’s the time for clear-headed thinking,” said WBS Equities CEO Wendy Berger, who is based in Chicago. “My long-term view is optimistic, but short-term, we are in for some pain.”
In a research note on the COVID-19 impact on global supply chains, Transwestern pointed out there may be a slowing in tenant demand and a cut to property valuations. Last month’s port volume in the U.S. is expected to be down by 13% year-over-year, Transwestern noted, citing National Retail Federation figures.
Construction has already begun to feel the pinch of supply chain disruption, as Bisnow reported last month, with many building materials sourced from China. Across the board, dealmaking has been slowed too, with company travel restrictions and quarantine measures making due-diligence trips challenging.
Romark Logistics President Marc Lebovitz described the situation as “unprecedented” and said that companies are going to have to take a closer look at their supply chains. He said retailers often start loading up their pipeline for the holiday shopping season by May, and if the situation continues supplies may be held up.
“This the first time I am witnessing something like this … the tariffs situation mixed with this pandemic, it's uncharted territory,” he said.
He said that a firm like his, which handles distribution, warehousing and fulfillment service, may actually see an uptick in business as companies make preparations for potential delays.
“Everyone is going to take a look at their supply chain, and they might find new ways to deal with it," Lebovitz said. "It could mean more storage and in different locations."
Berger's company focuses on build-to-suit food manufacturing and distribution buildings, and she has multiple properties in New York, Ohio, Illinois and Massachusetts. Her first step, she said, is checking the insurance of tenants in her properties.
“In the event that this becomes more widespread and prolonged, what do you do in the event that a business has to shut down, are you covered by their insurance?” she said.
Like many in real estate, she has stopped nonessential travel, and has canceled a trip to Israel because of that country’s decision this week to enforce a 14-day quarantine for anyone who arrives there.
“We are seeing a slowdown in many industries," Berger said. "I am less concerned given my business is food, but my concern is for the global economy.”
Dov Hertz, whose firm DH Property Holdings is building two industrial properties speculatively in Red Hook, said it is impossible to ignore headlines about the virus and its impact on the economy. But he said it is difficult to predict what will happen next with the virus, and pointed out that the fundamentals that support his business remain the same.
“The industrial market in the boroughs is an e-commerce play, what would affect that play would be if e-commerce sales were declining. They are not,” he said. “One could make an argument that as the more quarantine comes into play in a regular part of our life, people still need to buy things … [there will be a] continuing increase in e-commerce sales, which necessitates last-mile distribution."
Andrew Iglowski, the co-founder of industrial developer and investor Seyon, agreed shifts in consumer behavior as a result of this crisis could benefit industrial.
"Supply chains remain stressed and retailers are reporting daily out-of-stocks," he said in an email. "While large-scale events continue to be canceled and more people self-quarantine, consumer spending will absolutely shift towards e-commerce — to the extent there can be a beneficiary, it will be industrial real estate."
KSS principal Scot Murdoch, whose firm's work includes designing Innovo Property Group’s multistory warehouse at 2505 Bruckner Blvd. in the Bronx, said he remains optimistic, though he is mindful of how any slowdown in accessing materials will impact projects.
“I trust in the expertise that is out there, I trust in business being smart and objective and trying to infuse calm into their workforce — [rather than] hype or a sense of panic ... Projects that are well underway will likely continue,” he said. “If anything, there might be a slowdown associated with the start of new development … It needs to be watched, but it is still some way off from becoming an imminent reality.”