The COVID-19 pandemic has impacted many industries, causing job losses on a scale that has not been seen since the Great Depression. Tourism has been hit hardest with hotels and airlines continuing to struggle globally. Some major banks have recently reported a huge increase in lending delinquency in the tourist sector, with an estimate of 25% of all hotel owners in the US falling behind on repayments. With major city centers experiencing a huge decline in the number of workers & commuters, the financial problems of the hoteliers are likely the tip of a substantial iceberg for commercial real estate woes.
This concept is reinforced by data from the National Association of Realtors states that 18% of realtors are behind on their rent payments. Commercial real estate value has also dropped substantially, in some instances to their lowest since 2008. The real estate market has been effectively paralyzed by uncertainty, and as one Bloomberg report put it – it’s hard for investors to know if their buying into a bargain, or catching a falling knife.
What Will 2021 Look Like for Commercial Real Estate?
Simon Marx; director of research and strategy at Lasalle Investment Management suggests that to analyse and predict the impact of the COVID-19 pandemic, we should split the analysis into two – pre-vaccination and post-vaccination.
In the pre-vaccination period, it’s unlikely that offices and real estate companies in large city centers will recover at all, with a dependence on public transport and with social distancing plus a general fear of the virus making more people work from home, especially during full lockdowns, the city centers are going to struggle to maintain the business structure and operations that they are used to.
In the post-vaccination period, as health concerns begin to dissipate, people, businesses and government organisations will hopefully look to work together to re-establish the previous day to day life and operations of a major city center.
Flexible working using a hybrid model of office-based work and remote working is likely to be a trend of the near future during the post-vaccination period. As recruiters and employers continually battle it out to hire talented individuals, the ability to work from home is likely to move from a perk for a small percentage, to a mainstream trend.
Remote Working & Hybrid Office Models
With major companies such as Twitter and Google reporting no downturn in productivity from its remote workers, some startups and even established businesses may work completely remotely and have no office space at all. There have always been questions regarding security, communication and
productivity when it comes to remote working, and with most companies reporting no issues, it is likely that more businesses will follow the model set by pioneering companies such as Neomam Studios, and have no office space at all. The fact that this type of operation model can work successfully is potentially great news for startups but there could be a major pandemic aftershock that will continue to hammer the commercial real estate sector during the post-vaccination period.
This could also mean that more companies take advantage of geo-arbitration and hire overseas workers and freelancers. This could also mean that talented individuals who reside in city center locations, may not be able to demand the same salaries as they do currently.
Wellbeing & Quality of Life
The pandemic may have accelerated a trend regarding the prioritization of wellbeing over career progression and income. With many more people working remotely during the pandemic, many have taken stock of their work/life balance, their stress levels and the importance of health and time with their families. It is likely that many will choose, if possible, not to go back to the typical working day of a stressful commute to a busy city center every morning and evening.
With companies such as Moneypenny and Zoom providing the software to make remote working a possibility for a large percentage of companies, it will be interesting to see what working model organizations adopt as we move into 2021.