Savannah Chamber

13 7 number of foreign investors who are looking to buy residential properties in the US. Until 2020, foreign buyers played a major role in the recovery of housing markets in the urban core of many large US MSAs, especially for luxury flats and townhomes. Another potentially negative for homebuilding is the reduced rate of household formation, which never fully rebounded from the lows reached after the Great Recession. Job losses in 2020 caused many young adults to move back in with family members, or simple to stay in their parents' home a bit longer. The wind down of many mortgage forbearance programs launched during the COVID-19 recession will put more foreclosed homes on the market in 2021. The influx of distressed properties will prevent home prices from rising as quickly in 2021 as in recent years. Due to the tight inventory situation, the Terry College does not expect home prices to decline in 2021. Non-Residential Construction Spending for new nonresidential construction will decrease in 2021. The down cycle that began in the second quarter of 2020 will continue. Low rents, high vacancy rates, and little or no absorption are powerful headwinds that will not overcome the tailwind generated by very low interest rates. Low yields and financial market volatility do make investors more interested in income-producing property as an asset class, but the risks are too high. In most markets, tenants will have the upper hand in lease negotiations. Credit conditions will tighten for those looking to build nonresidential structures, and will be very bad in markets with high vacancy rates. Even beyond COVID-19, trade tensions, dollar strength, and visa restrictions will dampen foreign investors' interest in US real estate. In 2021, there will be a few bright spots. For example, spending will increase to build data centers, communications infrastructure, and warehouses. Office and retail vacancy rates are already very high in too many markets and will continue to rise throughout 2021. COVID-19 permanently accelerated the trend towards remote work, which will reduce office headcounts and the overall demand for office space going forward. One counter trend, however, is that in post-pandemic America more space probably will be allocated to each office worker, reducing densely to allow for greater social distancing at work. Hence, the demand for office space probably will not decline as sharply as office headcounts might otherwise suggest. The overall effect, however, is likely to be less utilization of office space per dollar of US GDP. Demand for new office space will be most resilient in lower-density urban and suburban markets, especially where high technology and health care industries are concentrated. One positive factor is that the construction pipeline was not very full at the onset of the pandemic. Hence, the delivery of projects in the development pipeline will not hurt non-residential construction to the extent that it did in the wake of the Great Recession. Even though consumers' spending for goods recovered very quickly, retail is tremendously overbuilt and under demolished. The glut of retail space will sharply limit new retail construction. Financing will be very difficult to obtain. Competition from online retailers decreases the need to build more stores, but it will increase the need to build more distribution centers. Industrial development will be very limited with new development focusing on locations with logistical advantages. Due to fiscal constraints stemming from lower revenue collections, spending by state governments for publicly funded structures will decline. Public construction by local governments will fare somewhat better due to a relatively high reliance on property and sales taxes rather than income taxes. Although, residential property values will continue to increase, nonresidential property values will decline. In most jurisdictions, the overall property tax digest will benefit from upward adjustments in assessed property values, but tax digest may decline in areas with high proportions of office and retail properties. Typically, such adjustments lag movements in market prices by several years. In 2021, property tax bases will continue to benefit from the upturn in residential real estate prices. Therefore, local governments' property tax baes will be supportive of revenue collections and in turn public construction. In 2020, sales tax collections benefited because retail sales quickly recovered. In 2021, spending on both durable and nondurable goods will exceed pre-pandemic levels, mostly because consumers are not spending as much on services. Unlike most retail goods, many services purchased by households are not subject to sales taxes. Thus, the reallocation of consumers' expenditures from services towards goods has favored sales tax collections. Businesses' Spending for Equipment Due to growth of end markets, technological advances, competitive pressures, and less regulation, businesses' spending for equipment and intellectual property will increase by about 5 percent in 2021. That percentage increase could be larger should a medical solution the virus be found quickly and/or should trade tensions loosen appreciably.

• Cover