BlackRock Says FOMO Will Drive Tenants, Consumers

Fear of missing out often applies to buyers and investors. They see a bubbling market and want a piece, driving up prices.

In its recent report, US Real Estate: Retooling for the Recovery, which looks at multiple aspects of the US CRE markets, BlackRock addressed the topic, but not from the investor side. Instead, it came at it from the point of society. 

“We’re talking about FOMO in tenants and consumers,” Steven Cornet, BlackRock’s head of U.S. research and strategy, real estate, tells GlobeSt.com. “We’ve been locked up in a home, we all want to go back to travel and restaurants.”

That’s good news for the industry. As the report noted:

“The pandemic is still ongoing in many parts of the country with more infectious newer strains maring the outlook. However, vaccines are being deployed faster than in most other countries and there is a good chance that the pandemic will be under control in the US by Q3 2021. Society prefers connectivity and people will eventually want to gather again to travel, shop and have meals at restaurants. FOMO will take hold again.”

“Even if people are more concerned about health and safety but you see other people going out, FOMO goes up,” Cornet says. That creates a social pressure for others to do the same.

“Hotel and retail have come up 100% to 150% in their lows,” says Cornet. “In a post-vaccine world, people are going to go back to stores and restaurants.” But the implications for those leasing space are more complicated because businesses are still hurting.

“Collections are going down; they are rebounding quite strongly,” Cornet adds. “Not all businesses have survived. We’ve definitely seen bankruptcies in the leisure and retail sectors. In retail specifically we’ve seen retailers going from longer-term rents to shorter-term rents.”

“Instead of paying a base tent of $40 per square foot, you’ll rent at $15 per square foot plus a percentage to get it back up,” says Cornet. 

Shifting terms have helped renters, but also gave landlords the chance to more frequently increase rents.

“The institutional landlords like ourselves have been working actively with the tenants,” Cornet explains. “If a retailer has to close because of the mandate, we shouldn’t collect rent because the tenant would disappear. There’s been a lot of communication, working out what’s best for everyone, but at the same time we’re trying to increase the foot traffic. The more demand, the more everyone benefits.”

“In addition, the Biden administration’s $1.9 trillion stimulus plan coupled with a Federal Reserve that maintains its support of low interest rates to keep the economic recovery humming will likely lead to strong economic growth in the next couple of years,” the report said. “The combination of strong economic growth and low interest rates is supportive for real estate.”