By Jerry Heaton
The coronavirus has had a major impact upon many industries, especially businesses which deal with travel, leisure, sports or airlines. But what about real estate? The largest exporter in the world is China and our ability to buy goods from China at a low price and resell those goods to consumers in America is a large component of our economy.
The impact of the recent China trade wars has already impacted the stock price of major brick and mortar retailers long before anyone had even heard of the coronavirus. The retail industry, which has already been heavily impacted by Amazon and then trade wars now must face the threat of Coronavirus.
Let’s take a second to walk through the logistics of goods from China to America.
The first step is that suppliers in China have to deliver the goods to America, subject to the latest trade restrictions. Then upon arrival in America, those goods are sent to distribution warehouse centers.
The US industrial sector has been doing very well in the past few years due to the free-flowing supply of goods from China into America. But it’s important to remember that the Coronavirus and travel restrictions are not just impacting humans.
The supply of goods flowing into America has trickled to a point where local distributors of goods now only have a short-term supply to sell to retailers or Amazon. In other words, the typical free-flowing supply chain has a major clog. And until the Coronavirus and trade war issues are resolved, industrial tenants who occupy millions of square feet of industrial warehouses are in jeopardy.
We learned of one recent case where a distributor, who just signed a very large lease in a local industrial building, only has two months of supply to distribute. With no supply to distribute, there is no revenue to pay rent to the industrial building owners. The trickle of this could be devastating to the industrial sector, which has been the shining star of commercial real estate for several years.
The potential impact of this will only be assuaged with a rebound in the supply of goods from China to the United States. Bear in mind too that this issue is not exclusive to imports from China.
America imports goods from many other countries impacted and we can only guess as to how long this will all be an issue. In order to mitigate the impact of the current Coronavirus scare, owners and tenants of retail centers and industrial buildings should aggressively appeal property tax values to lower those taxes.
Paradigm Tax Group will work with local taxing authorities to make sure that any impacted owner or tenant receives the maximum property tax relief caused by global economic events such as trade wars and the Coronavirus.