International Policy Digest

Business /18 Aug 2020
08.18.20

How COVID Upended Real Estate

This article focuses on the behavioral changes now happening due to the pandemic in various institutions. These changes will redefine the workplace, public transportation, and the foundational concepts dealing with smart cities, commercial, and residential real estate.

As I observed several months ago: “The COVID-19 pandemic we are collectively facing is going to permanently impact more areas of everyday life in the United States than we realize. The changes will be a lot more than just redefining some of our healthcare responses, hospital procedures, and the CDC’s framework for dealing with national emergencies.”

This shift seems to be well underway. We are already noticing a huge shift where many workers are working from home.

Several years ago, I published a book entitled, Location Location Connectivity, to signify the shift in the importance of the old real estate adage that asked what are the three most important words in real estate. The traditional answer was: location, location, and location.

As more emphasis was put on voice, data, and video communications being available anywhere in the workplace, good economic development equaled broadband connectivity, and having broadband connectivity equaled job creation. Next-generation real estate converged with infrastructure and technology to impact regional economic development. This technological shift fundamentally changed real estate to focus on location, location, and connectivity.

While discussing the impact of the COVID pandemic on the current business climate with fellow long-time consultant and former student, James Kouris, he pointed out, “Look around. No one is working at all these downtown Chicago and suburban office complexes anymore. It’s dead!”

He’s absolutely right. Driving past suburban commuter railway stations in the Chicago region, I saw their parking lots, which were once almost impossible to find a parking space, had less than a half dozen cars in them. No one is taking the train downtown. They are working out of their homes and it looks like many will stay working from home.

This creates a whole new strategic direction for corporations shrinking their footprint in commercial real estate. Temporary alternative solutions are now becoming permanent and the question becomes whether the three most important words in real estate shift again to location, location, and home?

Working from home saves everyone money. It also impacts climate change because a lot less energy is expended from the reduced use of cars, mass transit, and other energy sources.

With the pandemic’s social distancing issues, the “open space” office approach that gained popularity in the last 5-7 years, is unacceptable today. And, to go back to cubicles which had a better definition of personal space, would be a very costly proposition to most companies to implement.

There is real money saved if a corporation can go from leasing five floors of commercial office space down to one or two. That real money drops down to the bottom line and some companies are already coming to that conclusion.

Less money in office space leasing, along with furniture costs, computer costs, and all the other significant costs associated with creating a workspace, gets reduced or totally eliminated.

The market will dictate what is viable and what is obsolete. The big question becomes, what will cities do as the definition of the workplace evolves from downtown office space to totally dispersed workers in the suburbs? Daily tax revenues from anticipated commuters ranging from cab fares, to lunches, to general retail shopping will evaporate and will need to be somehow replaced. Bloated government payrolls will have to be trimmed at the least, and more likely slashed in cities so dependent on huge daily revenues that can no longer be taken for granted.

Some companies are already assessing the feasibility of this new “stay at home” approach because they have seen a 22-26% increase in productivity from people working out of their homes. That is significant and they are not going to go back to the traditional approach they had before. The companies seeing this are not just the large, tech companies. Banks, insurance companies, and others are noticing the real cost-savings and are taking action in changing their organizational approach to where their workers produce their deliverables.

Permanent changes will also impact other areas of society. As pointed out as a possibility earlier this year, the new approach for public school education may be to deliver its content electronically rather than from a bunch of brick-and-mortar institutions dating back to the horse-and-buggy days.

The possibility is becoming more and more a reality to consider when it comes to a bloated bureaucracy like a public school institution. There could be a radical shift in the way public education is managed which would entail a great improvement on everyone’s tax bill.

What will the changes be to the viability of mass transit, if more workers do not need to go into the city on an everyday basis? “Work at home” may not be for everyone, but the amount of commuter traffic on trains going into major cities will diminish significantly. Public education requirements, public transportation requirements, and emerging concepts like smart cities and intelligent infrastructure will need to be redefined and reassessed as to their viability.

Those who have touted urbanism are seeing that concept destroyed as more people flee the cities for both suburbs and rural areas. The new trend is to get away from cities, get away from daily commuting, and work out of the house in a remote setting, and not come back into the city to live.

There should be some great discussions on this at upcoming conferences, but even the conferences will probably be held remotely via Zoom and not in a convention setting. That is a whole new discussion topic as well.