‘It depends’
By: J. David Chapman/August 12, 2021
I was honored this week to give a midyear update on real estate for credit union executives from around Oklahoma. I do these presentations every year to several organizations; however, 2020 and 2021 have been the most difficult in my career. It’s easy enough to go over the numbers so far, but my crystal ball is a bit foggy as for 2022. The presentation should simply be called “it depends.” It might also be fitting to call it “unintended consequences.”
It depends on our success as a society to get a handle on this COVID-19 pandemic and limit its effect of the economy. It depends on Congress and the American people’s appetite for the Biden administration’s infrastructure plan, his moratorium on evictions, his government programs to help those most affected by the pandemic and the effect of all this (unintended consequences) on interest rates, inflation, unemployment, and the national debt. Easy to predict, right?
Even good news has a caveat in today’s world. Take unemployment, for instance. Unemployment is nearly back exactly where we were before COVID, but unfortunately the rapid economic growth in the state has created a massive shortage of workers, causing many businesses to limit services or hours. Demand for products is another conundrum. Again, the strength of the economy has created pent-up demand for products and services, but the manufacturing and shipping has not come up to speed after the pandemic. This demand for products and services and inability to capitalize on the opportunity has created frustration among small business owners as well as consumers.
The shining star in real estate is industrial properties. Industrial space leased at record rates in 2020, and 2021 is nearly as strong. The pandemic caused companies to recognize the downfall of just-in-time logistics, prompting many to lease warehouse space to store products. Secondly, according to FedEx and UPS, every week was like the week before Christmas, creating a huge need for warehouse space. They also report the common problem of unavailable drivers and workers is limiting their growth and preventing service.
Second to industrial in performance is multifamily. Besides being held back by the “NIMBY” factor, it appears that the multifamily sector will continue to grow. In fact, if communities fight multifamily developments, it will increase rents and vacancies of existing product.
J. David Chapman is professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).