On Wednesday July 15, CREW San Diego, a membership organization dedicated to promoting, educating and supporting professionals in the field of commercial real estate, hosted a mid-year economic update webinar, featuring Ray Major, chief economist with San Diego Association of Governments (SANDAG).
Major provided an overview of the affects of the COVID-19 pandemic on the San Diego region and his outlooks for the coming months, next year and beyond. “2021 is going to be extremely lean,” said Major.
He made this prediction based upon data acquired and analyzed from various sources regarding multiple sectors and communities throughout the U.S. and within the local region.
According to the data Major presented, the U.S. and local economies are in a recession, with gross domestic product (GDP) down an average of 6.9% for 2020 nationwide and the San Diego region GDP down an estimated 7.1%. The downward trend will likely reverse in 2021 with the U.S. GDP growing 3.5% and 4.7% locally. Major noted, however, that this optimistic growth is based upon finding a vaccine for COVID-19.
Since March 2020, San Diego’s employment numbers have taken a dramatic downward turn. In March before restrictions were put in place, the region had a ‘healthy’ unemployment rate of 3.3%. This skyrocketed to 25% by early May. As of late June, that number had dropped to 14.3%. Major believes this number will rise again as California puts in place more stringent requirements, effective mid-July. Major noted that after the Great Recession, it took employment in the San Diego region 76 months to recover. Some of the employment sectors hit the hardest during the current recession – including tourism – were among the last to recover after the Great Recession.
The pandemic’s effect on San Diego small businesses has been difficult. Ninety-five percent of local businesses are categorized as small businesses and employ 50% of the workforce. In a recent survey, 82% of small San Diego-region businesses say they have seen a moderate to large negative impact due to COVID-19 and 73% requested financial assistance from the Paycheck Protection Program.
Local small businesses are staying positive about their recovery to normal operations. Approximately 45% expect the recovery to take more than six months and, in total, 88.3% believe they will eventually recover.
“It is difficult to project now what the recovery may look like,” said Major. He does not believe there will be a return to normal until a COVID-19 vaccine is available, so he is expecting a full recovery between 2023-2026, with ramifications being felt for the next two years.
Major expects some lasting effects may be seen beyond 2026, including discouraged unemployed workers leaving the workforce, educational disruptions – especially in the number of students dropping out, less investment in the capital stock and existing capital being less productive.
He expects some long-term disruption in the commercial real estate industry. Office space leasing will likely drop as businesses realize less need for space. However, the requirements regarding the social distancing of employees may require more space. As more businesses close, more space will open up. While repurposing office space for other uses is being discussed, Major sees that as a difficult and contentious area for a while, especially with conflicts between tenants and landlords over breaking leases.
Major cautioned real estate professionals to “separate the short-term situation from the long-term needs.” Infrastructure and other types of big projects will need to move forward. “We have learned to live with disruptions before, and we will come out of this with a new normal,” he said.
About CREW San Diego
Founded in 1983, CREW San Diego is part of the CREW Network of over 12,000 members in more than 75 markets worldwide, comprised of chapters spanning the U.S., Canada and, most recently, Europe. San Diego’s membership footprint includes developers, architects, general contractors, brokers, construction managers, life science, R&D, engineers and project managers. While 75 percent of CREW San Diego’s membership is reserved for those directly involved in development or tenant improvement projects, the remaining 25 percent of memberships are allocated to associates and affiliates, which encompass Emerging Leaders and professional service/product providers imperative to the successful growth of local commercial real estate markets. For more information, please visit www.crewsandiego.org.