In a matter of months, the lives of so many have changed in ways they had never imagined. Social distancing has directly changed the way people inhabit and interact with physical space, and the knock-on effects of the virus outbreak have made the demand for many types of space go down, perhaps for the first time in modern memory. Beyond the immediate challenge, the longer this crisis persists, the more likely we are to see transformative and lasting changes in behavior.
Real estate leaders must lay the groundwork to deal with the changes for the industry and take action now. Many will centralize cash management to focus on efficiency and change how they make portfolio and capital expenditure decisions. Some players will feel an even greater sense of urgency than before to digitize and provide a better—and more distinctive—tenant and customer experience. The smartest will now also think about how the real estate landscape may be permanently changed in the future, and will alter their strategy.
Within the commercial office space, the multiyear trend toward densification and open-plan layouts may reverse sharply. Public-health officials may increasingly amend building codes to limit the risk of future pandemics, potentially affecting standards for HVAC, square footage per person, and amount of enclosed space.
At the same time, just as baby boomers age into the sweet spot for independent and assisted living, fear of viral outbreaks like COVID-19 may prompt them to stay in their current homes longer. It is possible that demand for senior living assets could dampen, or the product could change altogether to meet new preferences for more physical space and more-intensive operational requirements. It is also possible that senior-living facilities could prove they are best able to handle viral outbreaks, accelerating demand.
The COVID-19 experience could also permanently change habits that may affect demand for other real estate assets, such as hospitality properties and short-term leases. Even a short moratorium on business travel could have lasting impact when alternatives such as video conferences prove sufficient or even preferable. Near-shoring of supply chains may further reduce demand for cross-border business travel, and consumers who are afraid of traveling overseas may shift leisure travel to local destinations.
Also consumers are forced to shop online because of closed malls and shopping centers may permanently adjust their buying habits for certain categories toward e-commerce.
The shift to e-commerce may also further boost already high demands for industrial space. Relatively niche asset classes (such as self-storage and cloud kitchens) could see an improvement in their unit economics, as demand density goes up when more people work from home, while other asset classes (such as coliving) may suffer.
Behavioral changes that will lead to significant space becoming obsolete in a post coronavirus environment seem imminent. The COVID-19 crisis has accelerated the need for rapid transformative changes.
We must rethink the future of real estate now. So rather than relying on traditional economic or customer survey-driven approaches, real estate leaders are looking to psychologists, sociologists, futurists, and technologists for answers. Will employees demand larger and more enclosed workspaces? Will people decide not to live in condominiums for fear of having to ride elevators?
While uncertainty currently reigns, by employing a range of creative personnel and using new methodologies, business leaders may find new and more predictive insight.
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