Inside the coronavirus epidemic’s impact on US real estate

Retailers and international student renters could feel initial impacts

Feb.February 05, 2020 04:40 PM
The impact of China’s coronavirus outbreak on real estate in the U.S. remains muted for now

The impact of China’s coronavirus outbreak on real estate in the U.S. remains muted for now

When real estate broker Sunanne Zhu brought a group of Chinese clients to visit a Manhattan luxury apartment tower last week, the building’s staff had some concerns.

In the wake of the Chinese government’s decision to put the central city of Wuhan on lockdown, and following reports of coronavirus cases in Seattle and Chicago, many of the prospective renters — mostly international students — had taken the precaution of wearing medical face masks while in public.

“There was a bit of a misunderstanding, but we cleared it up quickly,” Zhu said. “In America, when you see someone with a face mask, you think it’s because they’re sick. But in our understanding, you wear a face mask to avoid getting infected by others.”

Such minor inconveniences aside, business has been booming as ever for Zhu and her brokerage, Quanti Corp, as students continue to flock to New York City and fill many of the city’s newest residential developments. But the future remains uncertain.

“Some students’ parents have really let their imaginations run wild,” Zhu said, as rumors have flown around on social media about potential travel restrictions and quarantines in recent weeks. “Like, ‘What if my child gets put in quarantine, and catches the virus there, and dies while I am unable to contact them?’”

On Sunday afternoon, the U.S. government imposed temporary travel restrictions on foreign nationals who have visited China within the past two weeks. U.S. citizens who have traveled to Hubei province, the center of the outbreak, are subject to quarantine while those who have travelled elsewhere in China are subject to monitored self-quarantine.

“Timing-wise, it was good for us that the outbreak happened during the winter,” Zhu’s business partner Lei Pan said, noting that the vast majority of students had managed to return from winter break — and Lunar New Year travels — prior to the introduction of travel restrictions.

Zhu added that while there had been some cases of Chinese students putting off plans to come to New York in the spring, concerns about coronavirus have occasionally had the opposite effect, as students and even their parents have decided to wait things out stateside instead of returning to the epicenter of the outbreak.

“But if the situation somehow persists until September, I think we could see business drop off by as much as 30 percent,” Lei said.

Health experts remain divided on the outbreak’s projected timeline, though less optimistic predictions estimate that it may peak in April or May.

They’re already gone

Meanwhile, for New York’s condo market, recent developments in China may simply confirm what has been common knowledge for some time — the once-booming market for mainland Chinese buyers has long died down, amid tight capital controls and trade tensions.

Asked if coronavirus had led to a noticeable decline in buyers from China, Sotheby’s International Realty broker Kevin Brown said, “No, because they weren’t here” to begin with, due to geopolitical issues. Brown is a senior partner on the Nikki Field team at Sotheby’s, once noted for adeptly riding the wave of mainland Chinese buyers.

For the past nine quarters, though, Field said her team in Asia has concentrated more on places on the Chinese-speaking “rim” like Taiwan and Singapore — as well as, most recently, wealthy Hong Kongers who appear unsettled by mass protests in their home city.

“We’re still in the very early stages of preparing for it at this end,” Field said of the virus, noting that some Asian clients had canceled appointments in the past month without explanation.

While coronavirus infections have been reported in Hong Kong, Taiwan, Singapore and beyond, the vast majority are concentrated on the mainland, with about two-thirds of the 20,000-plus cases located in Hubei province. Experts note that as far as the United States is concerned, the common flu is a much more widespread and deadly disease than coronavirus appears to be.

As things stand, the impact of the coronavirus on New York’s residential market is rather limited, and several brokers The Real Deal spoke with said that they had not seen any change in business.

And while brokers in the niche market of international students, like Quanti Corp, may have much to lose in the event of a sustained epidemic in China, the overall rental market appears well-insulated from these risks.

“If there is a quarantine for international students, it would certainly be a serious problem for universities in the New York area. But is it a serious problem for landlords? I’d have to say no,” said Adam Frisch, managing principal at residential brokerage Lee & Associates Residential NYC. “Even as much as the market may have softened in certain areas, we’re still looking at a vacancy rate of three to three-and-a-half percent.”

In Frisch’s view, any drop off in rental demand from international students — many of whom are already facing challenges due to the new rent laws’ restrictions on security deposits — would quickly be filled by a long list of other applicants.

Disruptions in the movement of people between China and the U.S., which had already begun before the introduction of formal travel restrictions, are likely to have an impact on other types of real estate. The retail industry is particularly susceptible to this, especially at a time when large numbers of Chinese consumers would traditionally be travelling overseas for the holidays.

On the company’s fourth quarter earnings call Monday, Simon Property Group CEO David Simon observed that the coronavirus outbreak could put a dent in the mall owner’s revenues in the near term, somewhat offsetting the positive impact of the recent Phase 1 trade deal between the U.S. and China.

“Obviously, we’ve got a bigger picture going on with coronavirus and tourism. I assume that will be temporary,” Simon said. “And assuming we get through this coronavirus scenario, we expect our overage to continue to be dominant or at growth in our outlet business.”

And in the longer term, the biggest impact to New York may come from the disruption to the world economy as a whole, and global supply chains in particular. South Korean automaker Hyundai has suspended production due to a shortage of parts, while Saudi Arabia has pushed for oil production cuts in light of reduced demand from China.

“The size of China’s economy makes it inevitable that a short-term slowdown will drag on global economic growth, with Asian countries and major trading partners likely to be most affected,” CBRE Greater China analysts stated in a report this week, noting that while improved transport infrastructure in China could contribute to the spread of the virus, advances in surveillance and big data should help efforts to control the outbreak.

But if the virus cannot be contained, then all bets are off.

“A coronavirus pandemic would be even more of a ‘black swan than the global financial crisis and Great Recession of 2008-2009,” Moody’s analysts warned in a research report last week, noting that the industrial metals price index has fallen by 7.1 percent since the risks of coronavirus first became apparent.

“It won’t just affect our market — the implications are huge, and we need to brace for the impact,” said Daniel Chang, head of Asia for the Field team at Sotheby’s. Chang recalled how business slowed to a crawl during the SARS outbreak two decades ago, when he worked as a private banker for HSBC.

“I think it’s too early to tell” how buyers from Taiwan and Hong Kong might be affected, he said, “though it will definitely affect people’s traveling, and they’ll avoid deploying any substantial capital for now.

“We’re still in the first or second inning here, and it could be a considerable amount of time before people start to move back.”

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