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Fiera forecasts 4 COVID-19 scenarios during UDI webinar

There is a 50 per cent chance of a modest recovery in Canada’s economy during the third quarter o...

IMAGE: Pierre Pelletier, fund manager and senior vice-president, opportunity and development at Fiera Real Estate. (Courtesy Fiera)

Pierre Pelletier, fund manager and senior vice-president, opportunity and development at Fiera Real Estate. (Courtesy Fiera)

There is a 50 per cent chance of a modest recovery in Canada’s economy during the third quarter of 2020 should therapies and attempts at social distancing prove successful at halting the spread of COVID-19, according to a forecast by Fiera Capital.

However, the “psychological shock” will impact consumer confidence given the number of people who will be lost to the coronavirus, said Pierre Pelletier, fund manager and senior vice-president, opportunity and development at Fiera Real Estate.

That “rather optimistic” scenario was one of four possible outcomes to the COVID-19 crisis Pelletier outlined during an April 3 webinar organized by the Institut de développement urbain du Québec (Urban Development Institute of Quebec).

It explored how bankers, lenders and real estate clients are adapting to the crisis.

Fiera Capital also forecasts a 25 per cent chance of a prolonged slowdown, in which investors remain confident a vaccine will be found in 2021. However, under this scenario, the spread of the virus will not be entirely controlled, necessitating regional shutdowns.

With levels of fear and anxiety remaining high among consumers, there would be almost no economic growth for the rest of the year.

The asset management firm adds there is a 15 per cent chance of a rapid recovery, if an existing medication proves successful at neutralizing the virus and limiting its spread. In this scenario, social distancing measures will gradually be lifted and the economy will grow quickly in the third quarter.

Finally, there is a 10 per cent probability of a prolonged recession if attempts at halting the spread of the virus fail. This will result in a marked downturn in the global economy that will continue after the pandemic comes to an end. 

Real estate “not in distress”

James Palladino, director of RBC Capital Markets Real Estate Group, said “the real estate industry is not in distress.” Rather it “is in pause.”

Palladino said COVID-19 will have little impact on the industrial and multiresidential markets, nor on essential services in the commercial sector, such as groceries and pharmacies.

“Even if there is some slowdown, and some tenants don’t make it, nobody believes vacancy rates will grow enormously (in the industrial and multiresidential markets),” he said.

“These are sectors that will continue to perform very well in the medium and long terms.”

On the industrial side, “people realize that e-commerce works and many more distribution centres will see the light of day in the medium to long term.”

Shopping centres are now in crisis “but the sector was already undergoing transformation,” Pelletier said, with many in difficulty and several in the process of repositioning. In the medium term, he said the repositioning trend will accelerate.

Pelletier said while the short-term impact of the virus on hotels is critical, it should improve in the medium to long term, unless consumer habits change.

Seniors residences “have been hit in full force” but their fundamentals have not changed for the medium to long term. “We have an aging population,” he noted and while there may be a short-term slowdown the housing needs for an aging population in Quebec will not change.

Office market an “unknown”

The office market “is a bit of an unknown,” Pelletier said. “I think everybody is surprised to what extent we’re able to work efficiently at home. We have systems in place to do it,” which may result in fewer requirements for office space.

“On the other hand, I’ve had several discussions with colleagues and clients who say they can’t wait to return to the office.”

The closure of construction sites will create numerous delays. “Developers are concerned about deliveries for people who were supposed to take possession of their (residential) dwellings on July 1,” Palladino said.

In the wake of the pandemic, there will be a good opportunity for owners of distribution centres and warehouses, said René Demers, vice-president, real estate, Canada at National Bank.

“I think we’ve tested the limits of globalization,” and there will be a return of a supply chain for critical needs in Canada such as medical equipment and food. In addition, local buying will become more and more popular.

Lessons learned from 2008 economic crisis

Demers said banks have learned lessons from the 2008 economic crisis. They are very well-capitalized and stronger than 12 years ago.

“The system is there to support the population and the economy. We’re much better positioned than in 2008.”

Given the current the health and economic crises, Pelletier admitted, “I’m afraid. We don’t know what’s going to happen and how long it will last,” but by working together and reinventing itself, the industry will get through it.

“The biggest danger is that we lose confidence,” Palladino said, noting Quebec’s real estate industry faced more difficulties than the rest of Canada a few years ago. “We’ve taken several positive steps” since then “and we have to stay positive.”

Pelletier said before construction sites can be reopened, measures must be taken to provide workers with hot water and the ability to physically distance while eating lunch. Having one toilet on the 10th floor of a 32-storey building won’t work, Demers added.

If some players lower their standards, “everyone will pay.”

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