Economic Darwinism and commercial vacancy
Business is opening-up, and now that the weather has officially broken, the gates of enthusiasm will be blown open by June 1. As long as our viral incidents maintain a generally level slope (likely under 1.5 degrees/ 2.5 per cent), a measured recovery can begin. The unknown is the appetite of consumers and how quickly they respond to new constraints.
The economic dormancy over the last quarter has transformed business. The Black Friday-style consumerism will not be witnessed… maybe ever again. As Darwin would observe, our retail tendencies have adapted. We are now forced to the virtual. The challenge becomes - how many of our native Island enterprises can mutate/evolve?
We are shifting from brick and mortar to home offices and cottage industries. Our garages and basements will become incubators for artisans and selective specialization. We have been forced back into our “caves” to prosper. Impacts on the physical world around us are yet to be calculated.
March was an abrupt halt in activity extended into the spring. Construction projects in process continued at a marginally higher completion cost. Some projects on the planning docket have suspended, awaiting a more hospitable environment and improved future visibility.
Statistics suggest a different narrative. Like a locomotive with a full load, it takes time to slow the pace from top speed. Year-to-date total non-residential building permits were up almost 19 per cent; however, February to March was down just over nine per cent. Residential building permits February to March remained strong at over 30 per cent growth.
Residential housing sales, according to the P.E.I. Real-estate Association, was down only 4.8 per cent March over March. Not a troubling trend but the issue with statistics, they lag. The impact of COVID-19 will be calculated by fall; but with continued aggressive fiscal and monetary policy purchasers will respond, and real-estate impacts can be minimized.
We will always need a place to live but the way we work has changed, for the moment.
Will employees want to return to traditional work environments? Businesses tend to want to maximize space through density; stack your inventory to the ceiling in retail and cram your workers into rented space. Here there is resistance.
Will commercial space need to be repurposed, converted to residential? Will workers be as productive in nontraditional work-from-home models, will there be a surplus of residential density construction if the nature of residence changes?
How will the economy recalibrate the impacts, and how long might this take?
Large technology firms have indicated they may require more rental space as they socially distance their teams. Larger REITs (real estate investment trusts) are anticipating lower demands on commercial space, our local landlords will have to adapt to accommodate this shifting market and possible price compression. The rental market will assuredly recover, but we are in for a blip in demand.
Society's reflection of work-life-balance is being tested. Zombie companies reach for recovery as the small business landscape cedes to online global distributors; real-estate struggles to remain relevant and adaptively repurpose. These are among the pandemic aftermath, but our Island real-estate environment will remain as resilient as our collective health. We are grounded from a good position and have the potential for a healthy rebound.