“We cannot solve our problems with the same thinking we used when creating them.”
Albert Einstein
I am commencing a series of articles addressing the 2020 real estate industry from a 40+ year industry veteran’s view. The purpose is not to expound about my limited understanding, but to explore by questioning and proposing possible scenarios or solutions to the evolving challenges in this country as it endures the pandemic. Basically, I am seeking to help you, the reader, find your way to some rational way to understand the ever increasing dilemmas that many people either are or will be facing until we see a global solution to the health crisis. I will end each article with a request for your responses to the questions and my proposed ideas. Perhaps they may lead to creative and/or practical solutions?
The inquiry will seek to explore four aspects of each pervasive question:
- Perspective- How has this changed us? How will humanity cope with this shock?
- Resilience- What mental models can help us understand the impact on real estate use and production
- Implications– What it means for real estate markets
- Opportunities– Where are the opportunities and for whom?
Source Article
Below is the overview with a master list of questions which will be the lead to subsequent articles, each with a title link. The plan is to post an article bi-weekly alternating on the weeks where an episode of my podcast, “Icons of DC Area Real Estate” is not published.
Overview
So, what is normal? Certainly, we are in a transition as no one can tolerate the COVID 19 restrictions indefinitely unless you live on a self sufficient island. How to weather this environment of “social distancing” and wearing masks in public. Will it take the CDC to bless a vaccine that most people can take without permanent side effects to overcome the fear and public restrictions overlaying life in much of the world today? How will the US property markets cope prior to returning to pre-COVID interaction? Below enumerates some questions and alternatives by property type. Subsequent articles will delve deeper into each product type with the four aspect framework cited above.
- Residential
- How will people live?
- Will homes become multi-functional including living, working, playing and shopping?
- Will families merge into large homes with internet access allowing a cottage work and school environment?
- Will apartment living permit social interaction safely and how?
- For “common areas” how will air be filtered and services be rendered? On site amenities?
- Where will people want to live?
- Why live in a dense urban environment in a small relatively expensive apartment if close by amenities are limited or not available?
- Why not move to a suburban environment with more green space, lower cost per s.f. of housing and arguably better schools and amenities?
- Demographically, the US is aging, as Millennials are now in their late 20s and 30s and more affluent, coupling and wanting families. Why wouldn’t they move to more family friendly environments?
- How will property values be affected? What types of housing will be “on trend?”
- Single Family Rentals
- Manufactured Housing
- Accessory dwelling units
- Suburban larger unit apartments
- Townhouses with larger s.f. areas and amenities
- Large mansions will be too expensive, except for Gen X and wealthy Millennials
- Housing to accommodate consolidation of generations
- Office
- Whether and when should people return to the office?
- What would stimulate workers to return to the office if they don’t need to physically meet with others?
- How often would workers come into the office and how often would they work at home?
- What types of work need to be done in an office setting?
- How much lost productivity is there by not being in an office setting?
- How will the space and common areas be configured?
- Why use co-working settings and if they re-emerge, how will they be configured?
- Where will the balance shift between spacing peoples’ offices and actual people in attendance?
- Will there be shift working to allow fewer people to work in the space at a time?
- Implications
- More space per worker, but fewer workers on premises at once
- More air filtration, testing of people, spacing in common areas (elevators, bathrooms, etc.)
- Cost of operations higher per s.f. with less demand for space use (Squeeze on both revenue and expenses)
- Retrofit costs and tenant improvements higher
- Office space will be converting to other uses for buildings that cannot adapt to future demand requirements
- Retail
- How will retail uses be adapted into other uses?
- Restaurant and entertainment retail (sports, theatre, concerts, etc.) are significantly impacted such that with every month many venues and businesses will cease to exist requiring a rethinking of these spaces to adapt
- Regional malls will become much scarcer and only the most viable ones will survive in probably a different format with retailers that have multi-platform functions (i.e. internet and in store). Landlords will become partners with retailers and rents may become more percentage than fixed.
- Grocery anchored centers and freestanding drug stores will survive if co-tenants adapt and creative uses generate traffic beyond convenience
- Where will demand come to replace vacant retail space in malls, power centers, community centers, unanchored strip centers and vacant pad buildings?
- Will service overcome price as a reason to shop physically?
- Customer service will differentiate those that make it with those that won’t
- What trickle down effects will physical retail sales drops have?
- The inevitable drop in sales taxes from retail real estate will have long lasting effects on local municipalities unless internet taxes are imposed and reallocated
- Hospitality
- Demand has disintegrated for travel and leisure, group business and business travel until the pandemic’s implications are more settled
- When travel returns, what will the demand be for all segments in hospitality?
- What happens to hotels/motels that cannot survive?
- Will their uses change to accommodate social and commercial needs?
- What re-use potential is there for vacated hotel properties?
- Will they sit vacant until another hotel takes it or convert to residential or another use?
- Industrial
- As internet shopping continues to grow and home delivery increases, will industrial and automated uses “eat” retail, office and hotel assets and/or space?
- This sector stands to actually gain from the crisis, as goods need to be stored and distributed, particularly to meet the “last mile” demand
- Manufacturing will continue and actually increase as workers may shift from office to “maker” positions in the long term- high tech and robotics operations
- Institutional (Hospitals, Schools/Colleges, Government buildings, Museums, etc.)
- How will buildings be adapted to accommodate updated norms of behavior due to the pandemic and its implications?
- Depending on its purpose, each institutional structure will have its unique challenges and opportunities
