Chances are that the world returns to normal. From SARS to Bird Flu to Ebola, it seems there is always some type of health scare that we are told will alter the course of our existence. Hopefully, a few years from now we are able to put coronavirus into the category of other close calls. But this one feels different. And it is already altering our lifestyle in dramatic ways that prior health scares did not.
Just this week, the NCAA said that it will hold March Madness without crowds, SXWS canceled its annual event, the Coachella Festival announced that it will be postponed, Google told its 100,000+ employees to work from home, countless other companies encouraged their employees to telecommute, and toilet paper has become an unusually hot commodity. While the real estate industry as a whole appears (at least so far) to not be affected to the same degree as the travel and entertainment industries, what impact can we expect the coronavirus to have on the real estate industry over the course of the next few months and years?
The answer, of course, depends on numerous factors, such as how quickly the outbreak spreads, the duration of the outbreak, and the actual impact of the coronavirus on humans once we are able to analyze data from the inevitably larger sample size that we are certain to get. Even if the coronavirus is gone tomorrow, the impact on the real estate industry could be significant.
Telecommuting has certainly gained momentum in the past few years. But with more and more employers now encouraging their employees to work from home during the outbreak, employers are getting an unexpected preview of what a significantly smaller office footprint could look like in the future. Technology companies such as Zoom and Slack are being thrust into the spotlight as businesses try not to skip a beat with their employees working from home. If the technology companies can facilitate a work environment outside the office that delivers results for employers during this outbreak, then expect demand for smaller office footprints to accelerate as a result of the coronavirus.
On the other hand, the demand for co-working spaces could decline significantly. As people try to avoid interacting with others in the office environment, the allure of leasing space in a co-working environment could diminish. The operators of co-working spaces will need to innovate in order to retain and attract new tenants.
Any discussion about the coronavirus often includes recommendations about social distancing. In its simplest terms, health experts suggest that avoiding crowded areas can be a helpful tool in avoiding the coronavirus. If the population at large follows this advice, the immediate impact on the retail sector could be significant as people avoid grocery stores, shopping centers, and malls.
But what will this mean long term? People still need food, clothes, and other essentials. And of course, they want other non-necessities. More and more people are already using Amazon and other online services to do their shopping from home. But there is still a large untapped market of people who have never used online shopping. There will be a significant number of these people who try online shopping for the first time as a result of coronavirus fears. This could be a tipping point that forever alters some brick and mortar stores and how they accommodate the online consumer. As at-home and curbside deliveries increase in popularity, retailers will need to consider store sizes, layouts, and pick-up points when they design stores.
The industrial sector will also feel the impact of the coronavirus outbreak, both good and bad. If online shopping becomes more prevalent as a result of the coronavirus, more industrial space will be required to house inventory at distribution centers. However, larger industrial spaces likely will mean more employees in close proximity to each other, so employers will need to be cognizant of how this will impact their operations during future outbreaks of the next major virus.
The coronavirus outbreak has led to a sharp decline in U.S. Treasury rates, which has driven down the interest rates on real estate loans. Many borrowers who were already in the process of refinancing existing loans will reap the benefits of these lower rates. If rates continue to stay low, more borrowers will rush to refinance and lock in rates that are at historically low levels.
While the coronavirus may not seem like it will have a major impact on the real estate industry, a closer examination suggests that it actually may have a far-reaching impact. From office to retail to industrial, expect that the real estate industry could see major changes regardless of whether the coronavirus is short-lived or is here to stay.