Pandemic Has Upended Some CRE Trends While Accelerating Others
It’s fair to say that no commercial property sector has remained unaffected by COVID-19 and the resulting downturn. However, a report from Kroll Bond Rating Agency makes the point that in some sectors, the pandemic upended secular trends, while in others it merely accelerated them.
In the case of office, it was some of both. While the share of office-using employees who work remotely is expected to rise from 8.1% pre-pandemic to about 40% in a hybrid model, KBRA notes that the trend toward reduced square footage has been with office users and landlords for some time.
Yet, there’s a twist: while the total square footage occupied by a tenant may be reduced, the square footage per employee may increase to allow for social distancing.
For retail, the impact has been largely an acceleration of ongoing trends. These include the increased emphasis on e-commerce, the decline of malls and store closures.
However, in one instance a trend was upended: the “experiential” operations favored until recently by retail landlords have been some of the hardest hit by stay-at-home orders. It’s not a coincidence that the ranks of recent bankruptcy filings have included restaurants, fitness clubs and movie theatres.
“With an effective vaccine and/or therapeutics, we suspect those tenants that survive will bounce back, given consumers’ desire to get out of the house, be active, and avail themselves of recreational opportunities,” according to KBRA’s report.
Multifamily in general is seen as one of the two sectors (along with industrial) most likely to emerge from the downturn unscathed. However, KBRA’s report cites a number of impacts from the pandemic, ranging from increased emphasis on virtual apartment showings to shifts in demand.
“Crises can produce above-average numbers of divorces, marriages, and births—all of which create demand for housing,” the report states. “Conversely, there is also reverse household formation occurring as many younger/single folks (including a generation of college graduates) are moving back in with their parents, which is going to be sticky well past the pandemic. These changing situations will cause opposing trends.”
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