Omicron Could Slow Property NOI Recovery

Omicron or any subsequent severe Covid-19 variants that affect travel or trigger business shutdowns could slow property NOI recovery, Fitch Ratings says in a recent report. 

The recovery could also see a drag from continued labor shortages and supply chain issues, particularly in the retail and lodging sectors, Fitch cautioned.

NOI already is being dampened by increased costs, due to higher wages in a strong job market and broad-based building material shortages. Those factors have, as well, increased capex for commercial real estate, potentially weakening CMBS credit profiles, according to Fitch.

Currently, the firm said labor shortages are harming a number of sectors in the recovery with hotel and retail operators having a difficult time hiring and retaining the workers they need to provide comfortable levels of service. Some retailers have had to limit store hours or temporarily closed locations in order to keep a nearby location more suitably staffed. “This often can cause a ripple effect on other retailers in the same center as foot traffic is likely to diminish,” Fitch said.

Also, supply chain problems could result in retailers that heavily rely on holiday sales posting volume and revenue declines, resulting in lower sales revenues and further store closures, the study predicted.

Property improvements are seeing higher building material costs increasing expenses and/or delaying capex which could postpone new tenants from taking occupancy or reduce appeal to consumers, Fitch said.

The report noted Bureau of Labor Statistics data showed construction materials and component prices increased by 18.4% year over year in October.