The number one news story this past week has been the global spread of the coronavirus. From its origin in Wuhan, China, with an outbreak that started in December, the coronavirus has in just two months spread to 47 countries and every continent in the world except Antarctica. From its historic peak on February 12th, the US stock market has, as a result lost, almost 14% of its value, the bulk of that decline in the past week, on concerns that the spread of the virus could have a significant impact on the global economy. The airline and travel industry have been hit the hardest with multiple cancelled flights to and from Asia and the cancellation of conferences and events around the world over concerns that assemblies of large groups could help spread the virus faster. Most recently, a January conference of just 109 people in Singapore has been traced as the source of coronavirus outbreaks in Malaysia, South Korea, England and a small alpine ski resort in France.
The coronavirus is not a new disease. A previous outbreak of a coronavirus took place in China in 2003. However, in 2003 China wasn’t as big a part of the global economy as it is today. In the past two decades, much of the world’s manufacturing has moved to China. Today as the manufacturing capital of the world, China is currently in lockdown mode to prevent the spread of the virus within China. As a result, many factories that produce the goods that supply the world are shut down or experiencing significant slowdowns. Companies in the US from Apple to GM are warning of shortage of parts from China that could slow manufacturing in the US. Many companies around the world are now reporting that the coronavirus outbreak could impact their bottom lines for the foreseeable future. As a result, profit forecasts have been cutback which is impacting global stock markets.
Against this backdrop, could the commercial real estate market be impacted? Because the ski resort towns of Western Colorado are a popular international resort with a heavy reliance on tourism, it’s possible the local real estate market could be impacted in some manner at least in the short-term. That impact could be direct or indirect. A direct impact might be an outbreak of the virus in one of our resort town communities brought by someone exposed to the virus by traveling through parts of the world where the virus has already shown up. An indirect impact could result from uncertainty and tumult in the financial markets that could lead to a prolonged slowdown in the global economy which could lead to a slowdown or recession in the US economy and a reduction of buyer interest in resort real estate markets.
The probability of an actual outbreak of the coronavirus in Western Colorado is likely low due to the fact that only 8-10% of our visitors are from foreign counties, and few if any of those visitors come from Asia areas directly impacted by outbreaks of the virus. However, as a precaution, there is always the possibility that events or conferences planned that would attract an international audience could be cancelled or postponed jolting the local economy. The most likely impact, if any, would be indirect from a possible extended decline in the stock market and economic slowdown. The real estate markets for our resort mountain towns tends to track closely the direction of the stock market. As the stock market goes up, the local real estate market tends to follow. The opposite has historically also been the case. Past pandemic virus scares, like the SARS outbreak in 2003 and the Ebola outbreak six years ago, resulted in a 6-13% stock market correction followed by a resumption of the upward stock market trend. It’s too early to tell whether the stock market will follow past virus outbreak patterns, or if this is an entirely new situation.
Regardless of how this coronavirus situation plays out and even if the local market is impacted negatively in the near-term, the fundamentals for real estate in our mountain towns still look good over the long-run. A growing affluent class combined with low interest rates should continue to be positive influences on our resort markets. It’s also possible that somewhat isolated resort areas with their high quality of life, may become even more attractive places to live compared to larger metropolitan areas that could be more susceptible to future virus outbreaks.