Commentary: Still Sorting Out the Impact of Pandemic on Real Estate and Downtowns

By David M. Greenwald
Executive Editor

One of the things we are watching are emerging trends during the pandemic that are likely to impact the overall landscape—particularly as it impacts Davis’ housing market as well as its potential tech market.

In general, I think we should be cautious about adopting too broad or sweeping conclusions about permanent change during a pandemic.

For example, after getting to see the advantages and disadvantages of remote work over the last 20 months or so, many companies probably recognize that they can do a lot more remote work than they did previously, but most are probably not going to go all remote, all the time.

Still, looking at trends is useful to recognize impacts.

According to a recent report from the Urban Land Institute (ULI) and PwC US both the economy and real estate markets fared better than expected.

“Both the economy and the real estate markets have held up better than I would have thought. I would have honestly expected the fallout to have been worse,” the report quoted an industry expert.

They write: “The theme that emerged more than any other during the Emerging Trends interviews with industry leaders was the surprising resilience of the economy and of property markets generally, inspiring greater confidence in the industry’s collective capacity to adapt to changing market conditions and future unknown risks.”

They continue: “Facing a devastating medical crisis of unknown dimensions, the  economy sustained epic losses of output and jobs as the United  States promptly shut down at the beginning of the pandemic. But confounding initial expectations of a protracted recession and then recovery spanning several years, the economy began to bounce back almost as quickly as it shut down. The recession ended up lasting only two months—the shortest on record—according to the official arbiters of business cycles. Economic output is already back above pre-COVID levels, and jobs may recover to previous levels by early 2022.”

Still, there are impacts.

The report found that the pandemic exacerbated existing trends leading to changes to core areas.

For example, “During the pandemic, workers were freed from an office base, prompting some exodus from the central districts of high-cost gateway metro areas. That has given credence to proponents of secondary and tertiary market growth who contend that families—unbound from the need to be physically present in urban offices—will increasingly choose metro areas with cheaper housing, more living space, less traffic, less crime (whether in perception or reality), and better schools.

“The pandemic has accelerated the life shift of millennials,” noted one researcher.

On the other hand, “the consensus of our interviewees is that a large COVID-related regional movement of employers is more talk than action, at least so far.”

“It’s not showing up in the data,” said one senior executive. “The story is a little overblown.”

Further, they found that the pandemic and recession “did not damage real estate as much as some feared.”

However, the report found, “By forcing people to work and live differently, the pandemic revealed hitherto unknown reservoirs of flexibility in how the property sectors could function—and changed expectations of how people will use properties in the future.”

Further, “A renewed emphasis on work/life balance and the importance of convenience and productivity in how people manage time will require physical changes to properties to better align with how they will be used, especially in accommodating increased working and shopping from home.”

Following my impression—the key question as companies reopen will be for them to figure out what the arrangement will look like in the future.

Anita Kramer, senior vice president of the ULI Center for Real Estate Economics and Capital Markets said, “The trend we hear from so many surveys and professionals is that a hybrid [remote work] model is here to stay.”

She added, “With fewer people in the office every day, that’s going to create changes both inside and outside the office. A lot of this is still a question right now.”

There is a lot of speculation that these shifts could have major implications for downtowns.  A New York Times analysis conducted with real estate company CoStar reported that many cities dedicate upwards of 70% of their downtowns to office buildings.  That could now change as businesses downsize in order to accommodate fewer daily workers.

But that and other predictions might not hold.  We already know that some work can be done at home and there is the ability to remotely collaborate and network.  But we also know that collaboration is better in person, and efficiency may be as well.  Until we actually get to a post-pandemic world, it may be difficult to predict what happens.

Kramer believes there may not be permanent shifts from the cities to suburbs, particularly if downtowns further adapt with more open space and multi-use buildings.

“The hope is that as cities rebuild or renovate their infrastructure, they can continue to provide amenities in a way that gives people a real alternative to living in the suburbs,” she said. “For years people talked about the urbanization of suburbs with these urban nodes. Now it’s kind of a reversal in that cities are thinking about how to make themselves more pedestrian and more open.”

We shall see.  One thing we learned from this pandemic is a lot of predictions have simply not withstood the test of time.