“If we think about real estate as an asset class its value isn’t entirely determined by short term rent rolls,” said Tim Savage, Clinical Assistant Professor of Real Estate at NYU Schack Institute of Real Estate. “In the short run, we will see perceived values fall but this is a natural disaster, not a financial crisis. This hasn’t affected the capital, it has just affected the human capital. The volatility and pause in transactions that we are seeing is just a reflection of uncertainty. In the absence of data, all we have is uncertainty.”

These are strange times for all sectors and real estate is no different. The coronavirus outbreak, subsequent lockdowns, and the looming recession have created an unprecedented disruption to the business of commercial real estate. All the more surreal as we ponder the volatile future of our empty commercial buildings under confinement in our homes. In the absence of data, all we have are the knowledgeable insights of our sector’s wide spectrum of experts.

“Volatility and uncertainty always paralyze financial and real estate markets,” says Billy Rose, Founder and President of Beverly Hills brokerage, The Agency. “But people who were going to buy or sell 2-3 months ago have merely shifted their timing down the line. There may be some buyers who now can’t afford what they wanted. And there may be some sellers who will hold off selling until they perceive the market to be at a point they view as more favorable to them. The real estate market may not fly quite as high for a while, but there will always be transactions.”

It might not be quite as simple as that, outside of Beverly Hills, but there will always be transactions. Many proposed real estate investments will undoubtedly be canceled as the crisis impacts the financial strength of buyers and sellers, changing the business case of most deals, while the unprecedented uncertainty is sure to increase risk-averse investment behavior. However, another group of owners and investors find new opportunities and necessities to buy and sell, providing balance, eventually.

“As during the period following the global financial crisis of 2008, while some real estate players go beyond just adapting and flourishing, others fade. Individual firms’ abilities to weather the storm will depend on how they respond to immediate challenges to the industry—particularly the current declines in short-term cash flow and demand for space, as well as the uncertainty surrounding commercial tenants’ ability to pay their bills,” states an analysis by four partners from Mckinsey & Company in NYC, Boston, and Toronto.

“In the medium to long term, the changed behaviors forced upon the industry will have likely altered the way consumers and businesses use and interact with real estate. The critical question is which of these changes will stick. Throughout, acting quickly and smartly will help determine the fate of players not only in these challenging times but also as the industry emerges from the current crisis and inevitably reinvents itself,” the partners continued in a forecast titled Commercial Real Estate Must Do More Than Merely Adapt to Coronavirus.

Hotels must survive months of near-zero revenue as lockdowns continue, then hope for best-case scenarios as the situation surrounding second waves of the virus and potential long-term travel bans reveal themselves. Retail and entertainment wait to see when people can gather again. Enterprise tenants typically downsize during a recession but as involuntary remote work trials prove effective, many CRE owners fear an unprecedented consolidation. Hospitals have found capacity they never thought they had and will see a huge boost of investment to maintain some of that capacity after. Retirement complexes, meanwhile, may suffer from a diminished market.

“Not all real estate assets are performing the same way during the crisis. The market seems to have pivoted mostly on the inherent degree of physical proximity among an asset class’s users, even more so than on its lease length. Assets that have greater human density seem to have been the hardest hit: healthcare facilities, regional malls, lodging, and student housing have sold off considerably. By contrast, self-storage facilities, industrial facilities, and data centers have faced less-significant declines,” explains the McKinsey forecast.

“As of April 3, by one estimate, the unlevered enterprise value of real estate assets had fallen 25% or more in most sectors and as much as 37% for lodging. It’s no surprise that—when shoppers avoid crowds, universities send students home, and retailers, restaurants, and hotels close their doors —owning and operating those properties is a less valuable proposition. As such, liquidity and balance-sheet resilience have become paramount,” they warn.

Some robust businesses will have the means to survive the crisis, many more will depend on government support, one way or another. In the US, the $3 trillion CARES act has been passed to support the economy through the slowdown. However, the distribution of funds appears to be highly disproportionate and the total amount is not enough to avoid many businesses going into bankruptcy, especially those with large lease expenses. This will have knock-on effects across all commercial real estate as many factors combine to amplify the impact on property value.

Real estate investment trusts (REITs) hold large and diverse portfolios that can provide an early insight into the overall impacts on the real estate market, and it doesn’t look great. The 10-year-old Brookfield Property REIT, which focuses on retail, has lost 50% on its market cap since January. Bluerock’s REIT of multi-dwelling residential buildings also dropped by 50%. In office real estate, the top-tier portfolio of Boston Properties only saw a reduction of 30%, while industrial real estate titan Prologis is down around 20%. While some types of property will need more support than others, the proposed aid packages are unlikely to allow us to avoid massive disruption in the property industry.

“The financial world is still unpacking all of the aid packages aimed to help the country find its footing again after the economic slowdown caused by the COVID-19 response. The effects of the bill will be felt for years to come and will likely determine which sectors get the brunt of the losses from the shutdown needed to slow the spread of a deadly virus,” says Franco Faraudo, in an article on Propmodo. “One of the silver linings of this pandemic is that all of us seem to be united against a common enemy. We know that we will all have to share the pain in order to beat this thing. But, the property industry might share a disproportionate amount of that pain, even with moratoriums and forbearance in place for what seems to be the foreseeable future.”

The world is changing, but we are changing with it. So, we in the commercial real estate industry can take a strange comfort from words of American mathematician, John Allen Paulos, “uncertainty is the only certainty there is, and knowing how to live with the insecurity is the only security.”