Future Promise Balances Bad Real Estate NewsBy Pedro Alcalá | Fri, 01/22/2021 - 13:17
Q: What have been the most important changes in the real estate sector this past year?
A: It has been a complicated year because most segments in the real estate market have been negatively impacted. Not a lot of subsectors within our business have survived 2020. On a positive note, the development and commercialization of warehouses and industrial parks avoided the effects of the economic crisis and the pandemic. This was due to the increase in e-commerce and because of companies like Amazon that make use of warehouse spaces and industrial parks. Other smaller segments of activity within our sector that have benefited from the events of this year include retail spaces used for telecommunications antennas and equipment and certain categories of communal residential real estate. Nevertheless, we are looking at an industry that has had many losers and not so many winners.
Q: How has the pandemic affected the industry?
A: Traffic in malls and other commercial retail spaces has decreased dramatically, due in part to the health safety protocols that have been enforced by the government and also because of the fear of contagion among the general public. Rental contracts have been temporarily renegotiated, including indefinite extensions. The negative outlook for commercial space development has also affected the development of office real estate, especially given the findings that indicate COVID-19 particles are airborne and can be transmitted through air conditioning systems. Arguably, that increases the potential and risk for contagion. Also, home office has had an impact on the private sector. Some employees, particularly those who live in small spaces with big families or young children, cannot wait to go back to the office. We hope situations like these put the industry on a trajectory of recovery sooner rather than later. Nevertheless, the clock is ticking and leasers are getting impatient and, in some cases, desperate. We could be looking at six or more additional months without any meaningful changes. Meanwhile, Mexico’s economic contraction continues and is poised to worsen, reducing investment in the real estate sector in general and office space development in particular.
Renegotiations and cancellations of leasing contracts, however, represent a segment of activity in our industry that will probably remain quite robust throughout this period. The signing of new contracts, however, will remain low.
Finally, hotels might be the most affected segment in our sector, given the enormous number of cancellations of both events and business trips. Fortunately, banks have given owners and developers payment options. Still, it is expected that many hotels will go out of business in 2021.
Q: How has JLL’s global portfolio changed this year?
A: All companies like ours have been severely impacted. For example, our business depends on the office space segment, which has decreased by at least 50 percent. Some of our competitors have taken a tailspin into the red. Our numbers, however, remain positive, especially after our stock price increased by 20 percent minutes after Pfizer’s announcement of the success of its COVID-19 vaccine. We are proud to say we have not fired any of our employees nor have their salaries been reduced. We are nowhere near bankruptcy and we see a feasible path to recovery for the entire industry. In two years, we could see a return to pre-2020 numbers.
The larger generator of uncertainty and risk in Mexico, at least from my perspective, is no longer COVID-19. It is the complicated relationship between the government and the private sector. It worries me a lot, more than the virus itself, and the consequences could last a lot longer. Having said that, Mexico's political future is hard to predict. We still have a lot of work to do.
Jones Lang LaSalle Incorporated (JLL) is a financial and professional services company specializing in real estate. It offers integrated services on a local, regional and global basis to owner, occupier, investor and developer clients. It delivers various real estate services across three geographic business segments: the Americas, EMEA and Asia Pacific.