Light at End of Tunnel: COVID-19 Vaccine Announcement Improves Outlook for Commercial Real Estate
09 Nov 2020
Pfizer announced today that its COVID-19 vaccine was found to be 90% effective and that it will seek emergency authorization from the U.S. Food & Drug Administration within weeks. By comparison, the typical flu vaccine is only 40% to 60% effective.
This is the fastest a vaccine has ever been created, coming just over 11 months since the COVID-19 outbreak occurred. The previous fastest vaccine development was for the mumps, which took four years to develop.
Today’s announcement has positive implications for commercial real estate, especially in large, high-density cities in the U.S. and Europe where the timeline on a “return to normal” became much clearer today.
Equity markets rallied and publicly traded REIT stocks reacted very favorably to today’s announcement, rising on average by 12.3%. The 10-year Treasury yield hit 0.93%, reflecting optimism about economic growth.
Pfizer announced preliminary results today that show its COVID-19 vaccine is 90% effective. Pending safety data, Pfizer can submit its vaccine for emergency approval by the U.S. Food & Drug Administration (FDA) within weeks. With timing of an effective vaccine becoming clearer, equity markets reacted ebulliently today to what appears to be a light at the end of the COVID-19 tunnel.
Stocks rallied for most sectors that have been hardest hit by the pandemic, including airlines, hotels and REITs. Those segments of the market that were considered COVID-19 safe havens, including gold and companies that have benefited from stay-at-home mandates, came under selling pressure. The S&P 500 ended the day up 1.2% and REIT stocks were up on average by 12.3%. The 10-year Treasury yield hit 0.93%, its highest level since March 20.
The market is also reacting in part to less uncertainty since the U.S. presidential race was called for Joe Biden over the weekend. While today’s vaccine announcement has no direct impact on the likelihood or amount of any additional fiscal stimulus, deficit hawks likely will assert that less stimulus is needed based on recent favorable economic data and a potential medical solution to the pandemic. As mentioned in CBRE’s Election MarketFlash, which party controls the Senate will determine the amount of fiscal support for the economy.
The Bottom Line
Today’s announcement affirms CBRE’s economic forecast and outlook for commercial real estate. We anticipate wide distribution of the vaccine in the first half of 2021 and a return to more normal economic conditions by the second half. During the latter half of 2021, office occupancy should materially increase and brick-and-mortar retail should more fully benefit from a resumption of activity. Nevertheless, we expect some residual effects of the pandemic—such as increased flexibility for office workers and consumer appetite for e-commerce—to remain prevalent beyond H1 2021. Full recovery in office, retail and hotels will take more than two years.