The Real Economy’s Industry Outlook report for the summer of 2020 is full of adjustments, changes and economic pain as the various verticals within the real estate sector continue to grapple with the effects of the pandemic.
But the prevailing theme is that many market trends that were already creeping into various aspects of the sector have been accelerated by the effects of COVID-19.
The residential sector, for example, was already experiencing a migration of millennials, the oldest of whom are now in their early 40s, from “first tier” cities like New York, Chicago and Los Angeles to “second tier” cities, such as El Paso, Texas, Madison, Wisconsin, and Salt Lake City, Utah. The movement was fueled initially by lower housing costs in the smaller cities, which millennials saw as a worthwhile trade-off between potential professional opportunities and housing costs.
As the move to remote working has largely succeeded, and fueled by the acceptance of more permanent remote options by trend-setters such as Google, FaceBook and the tech sector in general, the choice becomes easier. Home buyers can have their cake and eat it to, working for a company that may be headquartered in a pricey market like New York but able to live in a more cost-friendly locale such as Durham-Chapel Hill, North Carolina.
As an illustration, the report cited a survey that found 61% of workers in New York would consider moving out of Gotham if they were able to maintain their job and work remotely. In Boston, the number was 52% and in San Francisco, 51%.
The hospitality vertical, encompassing event spaces, hotels and their ilk, has arguably been the most negatively impacted industry during the pandemic. Event spaces and large, higher-end hotels, dependent upon large group gatherings, have taken a bath recently. Domestic travel is slated to decline by $519 billion (with a “B”) next year, representing $1.2 trillion (with a “T”) in economic losses. The report said that was nine-times larger than the hit taken by the industry after 9/11.
The result of this, according to the report, will be more open spaces, stronger reliance on touch-less technology and better ventilation within the spaces. Hotels and event spaces won’t disappear, but they will look and feel different moving forward.
Retail and office space owners have been suffering a similar fate in the form of delayed, reduced or non-existent payments from tenants. Retail mall landlords, for example, collected only 55% of the total owed, leaving about $7.4 billion in the wind.
Office landlords fared a little better, according to the report, but as the months march on and various states are unable to contain the viral outbreaks, the idea of tenants coming back to their office spaces becomes more and more elusive.