• Anand Rao

Post-Pandemic, the Real Estate Industry May Never Be the Same

The coronavirus has turned many industries upside down, and real estate is no different. Whether it’s residential or commercial, change — good and bad — is inevitable.

The coronavirus pandemic is undeniably changing humanity in some very profound ways. For instance, thanks to technology, there is no doubt that people can still learn, contribute, and manage while outside the office. Similarly, thanks to social distancing, family members and co-workers are communicating more often and learning more about one another — and they’re doing it virtually. The pandemic is also having a significant impact on global commerce. After years of supply chain optimization towards volume and price, manufacturers are contemplating bringing supply closer to home. Further, public and private sector leaders realize that products, services, and experiences can be delivered more efficiently by leveraging mobile commerce, cloud, and artificial intelligence. Put all this together and the impact across industries will be massive. The pandemic has thrown real estate into a tailspin, and leaders in commercial and residential sectors will feel substantial shifts in three ways: 1. White collar workers will change residences due to a rise in work-from-home and career switching. When the pandemic subsides, workers worldwide will question why they need to go into work every single day. After all, didn’t they work effectively from home using teleconferencing, collaboration tools, and chat apps? We’ve all proven that it can be done. The pandemic has also made many people introspective. They’re evaluating their careers, roles, and relationships. Once the economy and recruiting pick back up, many will switch jobs, and still others will want to be closer to family. White collar employees who are offered the opportunity to work remotely will recognize the need for a dedicated, distraction-free workspace at home. Many will opt for larger spaces with additional room for home offices. All of this will result in increased home sales and purchases. Lower interest rates will aid the process. When people are ready to buy, experienced homebuyers will find the sales process itself has changed. The pandemic is already forcing brokers to do more telling than showing, and they’re learning new skills like videography to combat the lack of traditional in-person service. For instance, open houses are no longer a tool real estate brokers can use to facilitate the sales process. In their place brokers are using FaceTime and Zoom to offer clients virtual tours. 2. Traditional office space and work practices will shrink and adopt a new normal. Progressive companies won’t try to go back to the old way of doing things. They will enable flexibility in work hours and office days, and entire functions may work comfortably remotely. Companies that embrace this new normal will leverage expanded work-from-home policies as a talent recruiting and retention tool. They will also reap the benefits of smaller office spaces and reduced overhead costs. Additional cost savings will come from scaling agile ways to work and streamlining middle management through self-governance and team-based accountability. As a result, commercial real estate will see a plethora of changes: - Corporations may scale down office spaces or opt for floorspace reduction - Corporate office moves from the suburbs to city centers in search of talent may slow - Start-ups that start virtually may continue to operate that way as they grow - The trend for open office, collaborative spaces may revert back to personal cubicles

A severe coronavirus outbreak in the US will also create some negative effects for commercial real estate. Because people are sheltering indoors, consumer spending has shifted away from brick and mortar stores to online options. This could prompt box-store closures and default rates on commercial real estate loans likely will increase. 3. Land transactions related to local manufacturing will pick up. While there may be a slowdown in leased office space, land transactions for factories, workshops, and warehouses may increase as the US pulls back manufacturing and assembly from Asia. Trade problems between China and the US had already set the ball rolling on companies considering bringing critical materials supply closer to home. Now with the coronavirus outbreak many U.S. companies are experiencing supply disruptions. Short-term measures to fill gaps via local sourcing may have more permanent impact on local manufacturing and, by association, on real estate. The depth of the impact on the real estate industry will depend on the severity of the spread of the coronavirus along with duration of lockdowns, but changes are unavoidable. Some will be good, and others not so much, but there are opportunities everywhere.