COVID-19 Effects on Commercial Real Estate
All industries have been affected by the COVID-19 pandemic; commercial real estate included. It has been interesting to see offices, retail and medical stagnant while warehouse activity skyrocketed due to the surge in e-commerce. Yet while e-commerce begins to level off and face-to-face interactions increase in other sectors, we anticipate that some effects may turn into lasting changes for CRE.
Office Space Needs: Shelter in place mandates forced businesses – resistant or not – to rely on remote work environments. Prior to the pandemic, 3.4 percent of the workforce was remote at least half the time. Estimates for post pandemic remote work range from 25 – 30 percent.* With a reliance on a smaller on-site workforce, net office demand will likely be 10 – 15 percent lower. Currently, there is about $500k SF office space hitting the market each week.
Office Design: Prior to COVID-19, open layouts were all the rage. Now, with social distance guidelines and fear of spreading the virus, we will likely see requirements for square footage per person, advanced air filtration systems and fewer collaborative workspaces.
Physical Retail Space: The pandemic has undeniably accelerated the threat of e-commerce on brick-and-mortar retailers. People previously reluctant to shop online were forced to, and many will continue to do so, which will likely reduce the demand for physical stores.
Warehouse Demand: The surge in e-commerce has skyrocketed the need for warehouses. The uptick in orders and need for quick delivery means locating warehouses close to customers. This might even mean repurposing “big-box” retail stores into industrial distribution centers.
Telehealth: Prior to COVID-19, practitioners said only about 9 percent of patient interaction was via telehealth. That increased to 51 percent during the pandemic** but has receded to 7 percent nationwide as the pandemic slows. While telehealth will remain a viable option, it won’t take the place of personal medicine. Medical office space will rebound and increase in demand as we move post-pandemic.