My head is spinning after listening to two starkly contrasting webinars on the same day. 

By John Jarvis

Thursday, April 16th began and ended with webinars. That may be true for a lot of folks in this work-from-home twilight zone episode we are all living through. But for me, the stark contrast between the projections and predictions of these two senior commercial real estate industry professionals was striking.

In the morning I listened to David Marino, Executive Vice President of the corporate tenant advocacy company Hughes Marino, conducting a webinar for the CFO Leadership Council with several hundred people tuned in. (Full disclosure, I work at Hughes Marino and David is my partner.)

And in the afternoon, I listened to Spencer Levy, Chairman, Americas Research and Senior Economic Advisor of the global full-service real estate company CBRE, conducting a webinar for the Northern California Corenet Chapter, also with several hundred people tuned in.

One might expect that these two would have different outlooks and guidance based on their contrasting business models. Hughes Marino earns its revenue in exclusive tenant advocacy while CBRE also represents building owners and investors and earns just 13.1% of their revenue from their “Global workplace solutions.”

Nonetheless, the contrast was startling. And it occurs to me that as we all take stock of the rapidly changing commercial real estate market, what we are hearing and from whom is going to severely impact our understanding, our assessment and our decision making.

So here is a quick summary of a few key points, quoted as best as possible, directly from the presentations:

On the market decline, the timing for recovery and the shape of the “curve”

Spencer Levy is predicting short term pain and a sharp recovery. He says the curve will be the shape of the Nike swoosh.

David Marino:

“An earthquake has happened in the middle of the ocean and there is a tsunami coming. There will be a flood of sublease inventory coming in the next 60-90 days. Simultaneously there is going to be a tremendous tenant default rate sadly. There is going to be a hockey stick in vacancy rates.”

On the outlook for 2020 and 2021

Spencer Levy says there is going to be rapid economic growth by Q3 2020, and even more rapid growth in Q4 2020. He is expecting 6% GDP growth in 2021.

David Marino:

“It is only going to get better for tenants throughout the rest of this year and into next year. On top of an increasing supply of vacant space we will see anemic demand. We will see declines in market pricing of 20% by the end of this year and 30% by the end of 2021.”

On “market rents” and pricing in this new market

Spencer Levy says we are entering a “Price Discovery Period.”

David Marino:

“It is going to be a knife fight, deal by deal, figuring out what the new market is. It is going to be the wild west. And we are going to rapidly get to the bottom because the supply shock is going to be so severe and simultaneous across the marketplace.”

On the effect of government programs

Spencer Levy finds promise in the fact that the government has shown its willingness to spend as needed in order to not only give us a soft landing, but to give us rocket fuel going forward.

David Marino:

“I am very worried about Wall Street catching up with Main Street. Eventually the earnings that everybody thinks are going to be there for this quarter, and the effect of the government programs, are not going to be what everybody hopes.”

On the prospect for a rebound in retail

Spencer Levy says we might expect something he is calling “Revenge Retail” as people are clamoring to get out and shop.

David Marino:

“If we end up with 30 million people unemployed, who is buying anything? And those who are employed are afraid of losing their job, they’re cutting expenses and hoarding cash. Nobody is going to go out and start buying things right when the market reopens.”

On the prospect for WeWork and the Co-Working sector

Spencer Levy says Co-Working as a sector is going to be just fine.

David Marino:

“WeWork and other Co-Working operators are going to be “smoking craters” in the next 60-90 days. It is end of days for these organizations. They will not be around in a year or two.”

On the prospect for the San Francisco Bay area

Spencer Levy says that the San Francisco Bay area is going to do very well because of its technology base.

David Marino:

“I think San Francisco is going to get hammered. If you look back at the last thirty years, San Francisco office rents are directly correlated with the NASDAQ. If the NASDAQ gets hammered, which I think it will, the market is going to really slide.”

On the change from a landlord market to a tenant market

Spencer Levy acknowledges that what was a landlord’s market is now shifting to becoming a tenant’s market, which may be bad news for the landlords but good news for the occupiers.

Well, at least on this point, I think the two sides have found common ground.