As COVID-19 deepens its hold on cities around the country, the question is increasingly becoming when it will peak in each city and for how long? By now, U.S. cases have risen to top 600,000 despite a recent plateauing of cases in some areas. Even once the worst of it is officially behind us, we may continue to see the virus pop up here and there, menacing populations that may have thought they were safe.
One commercial real estate professional we spoke to, an asset manager at a major real estate investment firm, is conservative and practical in her recovery expectations. She said in a conference call that “if we shed 10 million jobs in March, we have never created more than 200 thousand jobs in a month. Even if we double that, it will take a lot of time [to recover].” Even after that recovery eventually, inexorably occurs, though, what will the world look like? We keep talking about a return to the way things were, but is that even within the realm of possibility? Or will this period of disruption be so destabilizing to our systems that it will completely change our social, economic and political norms?
While recovery may still be a long way off, it is not too early to estimate the impacts of the crisis on the activity within the commercial real estate industry. That’s why we recently conducted an in-depth survey, in which we collected responses from industry professionals across the country and the world, working in fields from development to architecture to brokerage across a diverse range of property types. The resulting deep-dive report, The Commercial Real Estate Industry’s Reaction to the COVID-19 Threat, uncovered responses and sentiment about the affects of the pandemic on the industry.
Many respondents chimed in commenting on a need for a moratorium on commercial mortgages, and others just pointed to the dire need for an effective treatment or vaccine. One respondent, a leader at an office landlord in Turkey, said that “I don’t think the commercial real estate industry will recover to pre-crisis levels since both employers and employees will be accustomed to new business processes which make use of less office time. People will not change their habits.” So what kind of habits will change?
Will remote work become more commonplace now that we have all started growing accustomed to it? By the time this pandemic ends, all of us will have had a crash course in Zoom video conferencing. What about the way we cluster on city streets, take public transit, or shop at the grocery store? In many ways, COVID-19 seems to be shining a light on trends that were already bubbling under the surface. Online shopping for groceries, for instance, was already growing, by as much as 35 million U.S. consumers between 2018 and 2019.
23% of our survey respondents said that they would be using remote working arrangements more, after the COVID-19 outbreak. We are not alone in picking out this trend. In another recent study of 317 CFO-type professionals, Gartner found that almost three quarters of finance leaders will be increasing the number of remote workers within their organizations by at least 5%. Not only that, but their survey also found that 4% of respondents would be transitioning fully half their company’s staff members to a permanently remote plan. 17% of respondents said they’d be sending 20% of their workers home. These numbers could be disastrous to the office market.
Beyond just office space use, COVID-19 is opening up entirely new questions that point to the very heart of the real estate industry. How will retail landlords survive when their tenants cannot welcome shoppers into their stores? How will industrial owners keep their warehouses humming with activity when huge numbers of non-essential goods aren’t being sold? How will apartment landlords respond when their residents can’t pay rent, but regulations prevent them from evicting non-paying tenants? According to the NMHC, April rent payments are down only 7% from March, before the worst of the outbreak came to the country, but that’s just one month. What happens next?
Social distancing is something that will likely come to an end, whether it is in two months or a year and a half. Hopefully, we can end it sooner than later, but the memories of the danger present in close human contact will likely stay fresh for a long time. The economy may get its engine running and wheels turning late this year or some time next year. But will it even be the same kind of car?