{"id":1004553726,"date":"2021-10-12T15:20:36","date_gmt":"2021-10-12T23:20:36","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004553726"},"modified":"2022-12-08T14:27:13","modified_gmt":"2022-12-08T22:27:13","slug":"virus-economics-and-the-commercial-real-estate-industry","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/virus-economics-and-the-commercial-real-estate-industry\/","title":{"rendered":"‘Virus Economics’ and the Commercial Real Estate Industry"},"content":{"rendered":"\n
\"\"
Austan Goolsbee, the Robert P. Gwinn Professor of Economics, the University of Chicago. Image via Wikimedia <\/figcaption><\/figure><\/div>\n\n\n\n

The U.S. economy is still struggling to regain equilibrium following the outbreak of the pandemic 18 months ago. Therefore, it is hard to predict which of the tectonic changes brought on by the virus are permanent and which are temporary.<\/p>\n\n\n\n

For Austan Goolsbee, the University of Chicago professor and former economic advisor to President Obama who helped coin the term \u201cvirus economics,\u201d however, it is easy to tell the difference.<\/p>\n\n\n\n

\u201cI am of the bias that anything that COVID piles on an existing trend is likely to be forever,\u201d Goolsbee said during the opening general session of the ULI Fall conference. \u201cAnd anything where COVID pushes back against what was a multi-decade trend I find hard to believe, in five years, we are going to see it.\u201d<\/p>\n\n\n\n

Online shopping, for example, was already 10 or 15 years old and gaining steam when the pandemic hit. The exit from cities and the work-from-anywhere trend, however, is likely to be temporary.<\/p>\n\n\n\n

\u201cIt\u2019s been a nonstop increase in the urbanization rate in the United States and every rich country because we are more productive when we are together,\u201d Goolsbee said. \u201cThat is a simple basic fact in the data.\u201d<\/p>\n\n\n\n

Also, the current backlogs in the supply chain that make people question whether production for items such as computer chips should be centralized in a few Asian countries will be alleviated once this \u201ctemporary\u201d period is over, Goolsbee noted.<\/p>\n\n\n\n

\u201cI think five years after this passes, you are going to rediscover why the supply chain shifted internationally before, and that is: There are big economies of scale and it is cheaper,\u201d he said.<\/p>\n\n\n\n

One of the main tenets of virus economics is that this downturn is unlike any other due its cause and its effects. Therefore, the metrics that have been applied to the Great Depression, the Great Financial Crisis and other economic upheavals cannot be applied. <\/p>\n\n\n\n

In previous downturns, for example, people put off buying durable goods and only spent money on essential services. After the virus struck, people bought homes, TVs, and cars, and delayed spending on services that were thought to be recession proof, like the dentist, the doctor and restaurants.<\/p>\n\n\n\n

\u201cThe biggest predictor of comebacks and then re-stalling of the economy hasn\u2019t been durable goods purchases, hasn\u2019t been manufacturing\u2014<\/em><\/strong>any cyclically sensitive sectors,\u201d Goolsbee said. \u201cIt\u2019s been the moving average of what\u2019s the rate of new infections and hospitalizations from the virus.\u201d<\/p>\n\n\n\n

Goolsbee also thinks inflation is a temporary supply chain issue affecting products for which there has been high demand, such as: computer chips for cars, lumber for homebuilding, and, of course, toilet paper for the home.<\/p>\n\n\n\n

\u201cIf you look at where the inflation is popping up now, it is very concentrated in specific types of products that are related to the virus,\u201d he said. \u201cWhen you get persistent inflation, like you did in the 1970s, it is very broad-based. It is not concentrated in just a few sectors.\u201d<\/p>\n\n\n\n

Goolsbee was asked to comment on the Build Back Better bill currently being debated in Congress and whether it can be passed this year. He said it has the best chance of getting passed in Biden\u2019s first year, but expectations must be lowered to get Senator Joe Mancin\u2019s cooperation.<\/p>\n\n\n\n

\u201cBut that said, the economy continues to chug along on its own because 90 percent of what happens in the economy has nothing to do with Washington,\u201d he said. \u201cIt has to do with the innovative capacity of the American people and of the market.\u201d<\/p>\n\n\n\n

The Investor\u2019s View<\/strong><\/p>\n\n\n\n

Commercial real estate investment also chugs along, even though the industry has felt the full range of pandemic impacts: supply chain difficulties and inflation, online shopping, work from home and underemployment. But risk has been managed in the form of low interest rates and other stimuli, and, yield is in short supply.<\/p>\n\n\n\n

Eastdil Secured CEO Roy March, who later joined Goolsbee for a panel discussion, noted that core returns have fallen over the past five years from 6 percent to 5.75 percent to 6 percent IRR on a well-leased asset while the 10-year Treasury is at 1.63.<\/p>\n\n\n\n

\u201cThat multiple is pretty tough to beat, particularly on a compounding basis,\u201d March said.<\/p>\n\n\n\n

The ULI Fall conference, the organization’s first live conference since the start of the pandemic, is being held in Chicago.<\/p>\n","protected":false},"excerpt":{"rendered":"

At ULI\u2019s fall meeting, noted economist Austan Goolsbee shared insights on what\u2019s ahead.<\/p>\n","protected":false},"author":756,"featured_media":1004399636,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,23891,21742],"tags":[33101,33395],"class_list":["post-1004553726","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-national","category-latest","tag-eastdil-secured","tag-urban-land-institute"],"acf":[],"yoast_head":"\n'Virus Economics' and the Commercial Real Estate Industry - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/virus-economics-and-the-commercial-real-estate-industry\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"'Virus Economics' and the Commercial Real Estate Industry\" \/>\n<meta property=\"og:description\" content=\"At ULI\u2019s fall meeting, noted economist Austan Goolsbee shared insights on what\u2019s ahead.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/virus-economics-and-the-commercial-real-estate-industry\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2021-10-12T23:20:36+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-08T22:27:13+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2020\/03\/virus_earth-4808091_960_720.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"638\" \/>\n\t<meta property=\"og:image:height\" content=\"480\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Therese Fitzgerald\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/virus-economics-and-the-commercial-real-estate-industry\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/virus-economics-and-the-commercial-real-estate-industry\/\",\"name\":\"'Virus Economics' and the Commercial Real Estate Industry - 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