12.17.20 | Industry Insights
Consumer spending drives the economy. Anything that hinders consumer spending will lead to a contraction in the economy, and any incentives that drive consumers to increase their spending will help propel the economy to recover. At this time, nearly everyone is hanging their hopes on the COVID-19 vaccines to be that driver. People are hoping that this single treatment will directly lead to getting the economy and the nation back on track.
Let’s Be Cautious
Even with the great news of the COVID-19 vaccines, there are many factors and considerations that may derail the expected economic recovery. Among them:
- Until the vaccines are delivered in massive quantities, the number of COVID-19 cases is expected to climb significantly, not just in urban areas but in all areas including rural. This could lead to additional lockdowns and other restrictions.
- There will be a lag time as enough vaccines are manufactured to meet the demand.
- There is a need for ample proof that the vaccines are safe, and there are many people who are fearful and/or have moral and religious concerns.
- The uncertainty surrounding the control of the Senate due to the Georgia runoff elections is also a factor. If the Democrats gain control of the Senate, it will make president-elect Biden’s ability to pass legislation easier. If not, there may be congressional gridlock.
- Will there be new regulations or any tax changes or will law makers focus on encouraging business optimism?
- Will there be a new stimulus package and what form will it take?
- There may be significant de-leveraging after the pandemic ends which could lead to a tightening in lending standards and the availability of credit.
Reasons for Optimism
- The breaking news related to the vaccines quickly increased optimism for an eventual end to the pandemic. It enabled people to think that in 6, 9, or 12 months, things are going to look different but better. And that means planning
- Seemingly overnight, people started to reconsider being so hesitant about entering into a commitment:
- It might be deciding on a lease to rent a residential apartment again or signing a longer-term office lease agreement.
- If you are valuing a property, you might be more optimistic about what the future cash flows of that property are going to be compared to what you might have considered just a few weeks ago.
- If you are underwriting a property, it is the same scenario — things look a little rosier now compared to just a short time ago.
- Motivation is back. Pent up optimism has found something to cling to. People seem ready to turn the page on this pandemic that all they needed was the slightest sign of good news.
- This optimism is evident in the increase and overall performance of the stock market, which is always looking well ahead of the times. People are clearly looking towards a more positive future.
An Uneven Recovery
As the eventual recovery progresses, certain sectors will face a tougher hill to climb. It is widely known that restaurants, retail, and hotels have been among the hardest hit during the pandemic and will face more difficulties ahead. Nevertheless, the greater optimism as a result of the vaccine, will eventually lead to people considering returning to their offices, even on a limited basis. Once employees are back in NYC, this will be the first step in helping these troubled sectors bounce back to whatever the new normal will be.
The pandemic has proven once again the old adage: Never bet on the end of the world. It only happens once. Once again, the world didn’t end, and the rebuilding process is in our hands.
Questions: Contact Mitchell Marcus at 212.331.7460 | MMarcus@BerdonLLP.com or your Berdon advisor.
Berdon LLP New York Accountants
For more insights on the outlook for the real estate sector, here are the views of noted industry professionals.