Hope was on the horizon after vaccinations hit the market in early 2021. The economy began to recover, travel came back with a vengeance, and business in most parts of the country were booming. Now that 58.2% of the country have received at least one dose of the vaccine and case numbers are trending downward, consumer confidence began moving upward across the board at the start of the summer. But confirmed cases across the nation are climbing again, up 2,647% from June's low of 4,087 confirmed cases in a day, which is leading to the return of certain mandates, including masks indoors even for those who are vaccinated, and social distancing orders. It's understandable why investors may wonder if real estate is in for a second coronavirus crash.
Will Delta be real estate's downfall?
It's important to note that testing is up 165% during this same period and could be one factor contributing to the increase in case numbers again. But the percentage of confirmed cases as it relates to those tested went from 2% to 10.5% and is likely related to the Delta variant, which is considered to be highly contagious, spreading as much as 50% faster than the original Coronavirus strain.
The Delta strain has been discovered in vaccinated individuals, dubbed "breakout cases," which found vaccinated individuals with the Delta variant can carry the same viral load as unvaccinated individuals. This means the ability to transmit the disease is equal among vaccinated and unvaccinated individuals who test positive for the virus. This is leading policymakers on a national and local level to reinstate certain mandates, which could cause certain real estate operators to come crashing down again.
Nevada reinstated its indoor mask mandates in late July, followed by New Orleans (and the state of Louisiana); Washington, D.C.; Kansas City, Missouri; San Francisco; and Los Angeles. It's likely others will follow suit. Cities like New York are taking it a step further. Mayor Bill de Blasio announced the citywide mandate requiring individuals who wish to participate in indoor activities like dining, bars, gyms, and entertainment facilities, to show proof of vaccination. Businesses are once again scrambling to try and stay ahead of the curve and determine the best way to keep their employees and customers safe while staying open.
The tipping point
Many sectors in the real estate industry were just starting to show signs of recovery. The retail sector was doing well, up 31% year over year in Q2 2021, and vacation rentals, including hotels and air travel, were booming. But the Delta virus could erase all of that forward momentum, particularly among the office and hotel sector, which was barely making forward progress.
Restaurant bookings in April 2021 were down 38% year over year and month over month; foot traffic at retail centers (including grocers, malls, and power centers) is down as much as 10%; and office vacancy increased to 16.5% in Q2 2021. The travel sector seems the least impacted by Delta concerns. Thankfully there hasn't been much change in bookings for future travel, but that could all change if case numbers continue to climb.
Some companies, states, and municipalities have openly stated they have no plans to return to mandates or vaccination requirements, which could be a good thing for businesses in these areas. But they still have to find a way to continue to operate safely and combat weakening consumer confidence. Tyson Foods, which employs roughly 100,000 workers, has stated all office workers are required to be vaccinated, while other big tech corporations like Apple, Google, Twitter, and Facebook have announced plans to further delay the return to the workplace until we have a better grasp on the Delta variant.
The increase in case numbers isn't a great sign for the real estate industry, and the Delta strain will surely cause a ripple effect that will be felt across the real estate industry. Even if mandates don't come back on a large scale, consumer confidence is likely to weaken, which could lead to people staying indoors in an attempt to ride out the new coronavirus wave. Even a small decline in business will not help the bottom line for landlords or major real estate operators, like real estate investment trusts (REITs). Only time will tell how this plays out, but it doesn't hurt for investors to prepare for a second corona-wave crash.