From a small northwestern observatory…

Finance and economics generally focused on real estate

OK, First the Good News…

with 2 comments

The stock market revived quite nicely this month, with the Dow up about 12.5% in the first 11 trading days, although I’ll admit that real estate in general (and ACCRE, our in-house fund) had a couple of tough weeks. Why, you ask? I’m getting to that.

Now for the tough news. Fed Chair Jerome Powell today, speaking at the European Central Bank Forum, noted that “We’re covering, but to a different economy.” In short, the economy as we knew it is probably a “thing of the past.” We’ve suspected this for some time. In many ways, both macro and micro, the economy has shifted out from under us. Some examples, taken just from my personal experience, in no particular order…

  1. Technology has taken the place of in-person meetings. I probably attend more meetings per week now than I did a year ago, but they’re all on zoom or such. I have three scheduled for today, and that’s not unusual. The good news — my travel time, finding a parking space, calling for an Uber, etc., are way down. The bad news — the folks who drive those Ubers, the servers and cleaning staff who work in conference centers, the folks at Starbucks who get me my coffee for the drive, indeed the guy at Brooks Brothers who sells me neck-ties, are all out of work.
  2. Lack of in-person means dramatically less demand for hotel space. In an average month pre-Covid, I’d take two business trips with anywhere from 2 to 5 nights in a hotel. Now? None of the above. No need for office space, hotel meeting rooms, airplanes, etc.
  3. Ditto restaurants. I can’t remember the last time I darkened the door of a sit-down establishment.

The lowest paid workers, those in jobs requiring face-to-face contact, are shouldering most of this burden. The recovery, such as it is, can be decidedly described as “K” shaped, with some parts of the economy (those heavily invested in the stock market) doing very well, while others are running out of oxygen.

Not to belabor the point but this all has some very real implications for real estate. If Mr. Powell is correct — and I believe he is — then the tough sledding we’ve seen thus far in the property market is bound to get worse in 2021. The S&P property index, measured in terms of total return, is down 7% for 2020. Now, given how well it’s performed over the past 10 years, that’s not a bad pull-back. However, Mr. Powell suggests we may see ourselves oversupplied with property next year, particularly in categories where workers meet customers on a face-to-face basis. While the market has already discounted a lot of this, such as in REIT prices, the workout problems will be immense.

As always, I enjoy hearing from you. Please reach out if you have any comments or questions.

John A. Kilpatrick, Ph.D., MAI —

Written by johnkilpatrick

November 16, 2020 at 10:58 am

Posted in Uncategorized

2 Responses

Subscribe to comments with RSS.

  1. Bob Lockyer


    Robert Lockyer

    November 18, 2020 at 1:39 pm

  2. I envision many large coproations discovering more efficiencies within their employee ranks in the near future to further reduce commercial office space requirements with mobile, flexible and home office space and an introduction to successful robotic service sectors as well; technology that is advancing extremely fast and cannot be ignored. Amazon is now delivering drugs causing the big pharmacy stocks to fall yesterday (11-17). As an RIA specializing in helping business owners with the efficient transfer of their business assets, contingency and estate planning; I’m seeing larger coporations offering buy-out succession services to many sectors in the small-mid sized business market that use to be largely ignored. With all the public stock consolidation over the last twenty years, I give the mergers and acquistion players an ‘A+.’ Perhaps the M&A community is now facing an inventory problem as the rank and file advisors search for deals? The stock market has been “flexing it’s muscles” lately and I’m beginning to wonder how much, if any, is simply hot air? The quarterly returns over the next year should show how much resilience our economy still has left in it as we climb out of this pandemic. I imagine several good breaths in the economy left as we find new job areas to utilize the willing manpower wanting to go back to work where good robotic technicians will be in short supply.


    Bob Lockyer

    November 18, 2020 at 2:05 pm

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: