Transwestern: Covid-19 to drive U.S. On-Shoring, new Real Estate deals
Covid-19 will cause U.S. Firms to On-Shore Manufacturing and Distribution Hubs
By limiting the mobility of both people and goods, the global Covid-19 pandemic has dis-intermediated many global supply chains, including those essential to the U.S. manufacturing and retail sectors.
Widgets needed to build other widgets aren't being produced, or can't make it here. Foreign suppliers of consumer retail fashions have re-tasked to producing PPE or other required goods. Domestic suppliers are rising as well. For now, demand is insatiable for some things. Go-forward though, it is the question of abundant stores of long term supply that will drive the market.
According to James Hinton, Senior Manager of Investment Research and Analytics, for Transwestern in Houston, companies both domestic and abroad will become more nationalistic and more insular in terms of commercial real state or expansion.
“U.S. manufacturing capacity will move back within U.S. borders in order to limit further disruption from global supply unpredictability,” says Hinton. “Moreover, retailer strategy may tilt to over-stocking products, improving both capacity utilization of warehousing space and potentially increasing demand for related space across strategic logistics-driven markets.”
Both of these predictions are rooted in the same essential truth: In a post-covid-19 world, the way people and goods move will be forever changed. This, in turn, will have massive impacts on how and where good are produced and stored, with direct implication for commercial real estate investment.
With the days of rapid-globalization drawing to a close, Transwestern believes that Pan Asian Trading partners and more influences will drive changes in the market.
“As investors face volatile cost of capital swings in the coming months, property capitalizations may be disrupted. In instances where properties and markets are heavily dependent on foreign trade, underwriting standards will likely prove more cautious. In some cases, transaction velocity may slow and valuations could slip relative to recent sales comparables, impacting development, acquisition and refinance/ recapitalization transactions.”
Though deal flow is currently slow, Transwestern remains optimistic that both the U.S. manufacturing and retail industries will successfully recover from their current supply chain issues. Commercial real estate investment will go along for the ride.
"The long-term health of the asset class is not in question, especially in the U.S. However, investors should be mindful of current and future conditions, and monitoring symptoms will be vital to sound decision-making,” says the Transwestern report.