"Risk assessment in commercial leasing is hard in the pandemic era. Human mobility insights help make it easier."
UPDATE - DECEMBER 29 2020
The Houston Central Business District (CBD) neighborhood was growing at a steady rate entering 2020, with population growth of about 225 between October 1 2019 and January 30 2020, about inline with the trend.
Between February 1 and March 30 2020 - around the onset of COVID-19 and austerity measures - about 240 people emigrated from Houston's CBD, wiping out the previous quarter's gains.
In the ensuing five months, net migration turned positive again, albeit at a slightly reduced rate vs 2019. Total population growth for the period of April 1 to August 30 2020 was about 300.
Those new to the neighborhood since the pandemic began earn about $19,000, or 23%, less than the average 2019 resident. This follows a trend we have seen in other major US cities that is a leading indicator of shifts in local real estate and retail markets.
The minor boost in population is now helping total foot traffic remain relatively flat versus early July at -62% total, even as more austere measures are taken by officials and employers. As restrictions ease and assuming growth by migration continues, the Houston CBD may see a resilience in local foot traffic.
How can mobility data help?
Today, we’ll take a peek into how human mobility data can help manage the risk out of commercial leasing projects. For our purposes, we will focus on four risk categories: Economic Risk, Property Value Risk, Tenant Risk and Leasing Risk.
In each category, we will assess risk based on human mobility traffic patterns up to September 2020 as compared to a year previous in order to quantify their relationship to commercial leasing trends in the pandemic era. To build our use case, let’s focus on Houston as our target city.
Examining state, city and neighborhood data
Taking a look at insights from our Emerging Areas and Migration Patterns tool, it’s easy to identify high-level human mobility patterns in the area around Houston’s Central Business District. As of September 28, 2020, Total traffic from all categories of people is down 50 to 70% compared to the same time in 2019.
This lags well behind the overall city trend, where Total traffic recovery now averages within about 30% of 2019 levels across the 744 neighborhoods we examined.
That is a significant gap; certainly weak compared to some other business districts.
By zooming-in on the Central Business District, we can click to select the neighborhood known to the US Census Bureau as Block Group 3, Census Tract 1000, Harris County, Texas. This area, bordered on all sides by freeways, is home to the JP Morgan Chase Tower, Wells Fargo Plaza, the George R. Brown Convention Center and many other commercial buildings with ground-level retailers and restaurants on-site and nearby.
Total foot traffic in this neighborhood is down 69% compared to a year ago. That’s off a 2020 peak of +18% on March 9, exactly two weeks before the first day of Stay at Home instructions were issued in Texas. That rates this area of the Central Business District at the extreme low-end of our 744 Houston neighborhoods in terms of total recovery.
Recovery in this neighborhood as of the end of September had a flat trend, with no clear momentum. In a key indicator, the rate of Worker Traffic in the area, which peaked at +11% compared to 2019 on March 11, sat at -75% as of September 17. That’s down from a pandemic era high of -69% just two weeks previously. The prolonged absence of Workers from a business district inhibits overall recovery in a series of ripples.
First, the majority of those Workers probably commuted from other areas of the city to work in Houston’s Central Business District. Then, there is the impact on the large variety of services, restaurants and retail stores throughout the neighborhood that relied on those no-longer commuting Workers to keep their business afloat. There is also the downstream damage done to commercial lessors, investors and property managers when lessees can’t afford rent or their businesses fail.
Cross-referencing industry performance
With a quick look at the Retail Impact Scoreboard we can see that, while the industry is recovering in other parts of the state, the restaurateurs of our neighborhood continue to suffer from the loss of Worker foot traffic.
As of September 19, average foot traffic for restaurants in Texas was down just 15% versus 2019. That had upward momentum, with a 6% increase over 14 days previous. By comparison, restaurants in the Houston Central Business District neighborhood we are examining are far behind and falling.
The top performer of the group has only recovered about 50% of its foot traffic since the bottom fell-out in mid-March; that is still 35% less than the Texas state average.
On the whole, our neighborhood’s restaurant traffic is down about 80% -- just about a match for our area’s loss of Worker traffic in the same time. That’s not a coincidence.
Applying human mobility insights to risk assessment
Let’s go back to the four risk categories we want to align to our human mobility data findings: Economic Risk, Tenant Risk, Leasing Risk and Property Value Risk.
As to Economic Risk from negative changes in the macro economy -- Many US states, including Texas, have rolled-back previous re-opening moves. Our neighborhood - in the business district of an urban area, in a COVID red state - is underperforming in terms of traffic recovery versus state and city peers.
As to Tenant Risk -- Our neighborhood’s rate of recovery is low in most industries and all human mobility categories. Traffic trends are flat with downward momentum. As long as formerly commuting Workers stay away and that traffic is not somehow replaced, Tenant Risk is very real here.
As to Leasing Risk -- There’s a clear rate drop now and forecast well into the future. Houston is slightly behind the rest of the state in terms of both rent growth and vacancy rates, and our neighborhood in the Central Business District has lower Total Traffic and Worker traffic rates than most of Houston.
As to Property Value Risk -- Workers who used to commute to our neighborhood have left in droves. Local stores and restaurants, who may lease from us, are suffering greatly because of this. As more enterprises shift to Work from Home, their dependence on local office space may be obviated long term, or entirely.
Based on our analysis of human mobility data there’s nothing to indicate Workers are returning. Until they do, or there is a massive redevelopment of existing commercial and retail space, recovery in this neighborhood will remain stalled with little to no resilience.
Retailers and restaurants here will continue to struggle, putting further stress on commercial lease holders and fomenting future store closures and bankruptcies. These human mobility insights we’ve unearthed and applied here jive with many broader CRE metrics for Houston and the Central Business District, including actual and forecasted declinations in rent growth and vacancy rates.
If we were a commercial leasing professional, this is how we may get started using human mobility data to help assess risk. If you’d like to learn more, please contact us.