REAL ES­TATE’S COVID CONUNDRUM

Com­mer­cial, res­i­den­tial mar­kets in flux as pan­demic drags on

Chicago Sun-Times - - FRONT PAGE - DAVID ROEDER droeder@sun­times.com | @Roed­erDavid

We’re four months into this pan­demic. In some ways, that feels like an ar­du­ous slog. In other ways, it’s just a blip in time.

For ex­am­ple, ex­perts are say­ing it’s still too early to as­sess the pan­demic’s ef­fects on our choices for where we live and work. COVID-19 is a conundrum for the world of res­i­den­tial and com­mer­cial real es­tate.

A cou­ple of words about those mar­kets come to mind. One I’ve heard in sev­eral con­ver­sa­tions is “vis­i­bil­ity,” usu­ally in the con­text of lack­ing it, such as, “We don’t have much vis­i­bil­ity into de­mand over the next few months.”

The opaque out­look comes through in a re­port about the down­town area’s of­fice mar­ket through the end of the sec­ond quar­ter. The anal­y­sis by the firm Sav­ills, which rep­re­sents of­fice ten­ants in lease ne­go­ti­a­tions, found that much busi­ness is on hold.

Robert Se­vim, vice chair­man at Sav­ills, said many com­pa­nies are de­lay­ing de­ci­sions about space needs as long as they can. Em­ploy­ers are re­open­ing of­fices, but they’re still fig­ur­ing out who might con­tinue work­ing from home and whether that ar­range­ment suits their busi­ness.

The re­port said over­all leas­ing in the down­town area was down 75% in the sec­ond quar­ter com­pared with the prior quar­ter, mark­ing the low­est level in 15 years. With down­siz­ing com­pa­nies putting space on the mar­ket, va­cancy rates are ris­ing and rents have just started to head down, re­vers­ing a land­lord-friendly trend of many years, Sav­ills found.

On the res­i­den­tial side, post­coro­n­avirus mar­ket data for the Chicago area has shown steep de­clines in to­tal sales but prices mostly hold­ing firm, in­di­cat­ing lit­tle panic sell­ing is tak­ing place.

Ex­perts still worry about the evolv­ing cri­sis, with lay­offs con­tin­u­ing and spread­ing into new parts of the econ­omy. Peo­ple wor­ried about job se­cu­rity tend to put off buy­ing or sell­ing a home. Some think fore­clo­sures could spike in the months ahead.

The other word that comes to mind about real es­tate is “churn,” and I’ve used it in some con­ver­sa­tions. So if a leas­ing agent lays it on you, blame me. It de­scribes em­ploy­ers pon­der­ing if they need less space — be­cause busi­ness is down or more staffers are work­ing from home — or more of it be­cause work­ers are wor­ried about in­fec­tion in close quar­ters. It’s the cen­tral ques­tion of the down­town busi­ness dis­trict.

Se­vim said com­pa­nies are bid­ing their time and do­ing their analy­ses, but most will be mak­ing changes in their space re­quire­ments. “It’s go­ing to depend on each com­pany’s pref­er­ence. You will not find a sin­gu­lar ap­proach,” he said.

A few years ago, of­fice users were de­mand­ing rooftop party decks and ten­ant lounges. Now, they’ll be ask­ing about clean­ing prac­tices, ven­ti­la­tion and touch­less el­e­va­tors.

Cor­po­rate cul­ture and pro­duc­tiv­ity come into play. Some ex­ec­u­tives will con­clude the work­from-home ex­per­i­ment worked won­der­fully, while oth­ers see value in keep­ing a team to­gether. “The abil­ity to cre­ate and in­no­vate and build on a cul­ture is very hard to ex­er­cise when ev­ery­body is work­ing re­motely,” Se­vim said.

The “churn” has other im­pli­ca­tions. Will em­ploy­ers and hip­ster work­ers still flock to hereto­fore hot ar­eas such as Ful­ton Mar­ket? The Sav­ills re­port said Ful­ton Mar­ket and River North are es­pe­cially vul­ner­a­ble to lay­offs that have hit tech com­pa­nies and co-work­ing spa­ces.

Other firms could find smaller build­ings to be more ap­peal­ing than down­town sky­scrapers. Dar­ren Sloniger, pres­i­dent of Mar­quette Cos., a res­i­den­tial de­vel­oper in the city and sub­urbs, said he’s break­ing ground in Au­gust on a Ful­ton Mar­ket de­vel­op­ment near Union Park. “We’re not see­ing some big flight out to the sub­urbs,” he said.

My in­box lately has re­ceived sev­eral pub­lic­ity pitches, one from Real­tor.com, say­ing that searches of home list­ings show peo­ple have an in­creased in­ter­est in the sub­urbs, on the the­ory that the virus has made the sep­a­ra­tion of sin­gle-fam­ily homes and back­yards more pop­u­lar.

But searches are not sales. Peo­ple move or stay put for a lot of rea­sons, many of which will still ap­ply af­ter the pan­demic.

Ge­of­frey Hew­ings, emer­i­tus di­rec­tor of the Re­gional Eco­nomics Ap­pli­ca­tions Lab­o­ra­tory at the Univer­sity of Illi­nois at Ur­banaCham­paign, doesn’t buy the shift-to-the-sub­urbs ar­gu­ment. Hew­ings, who an­a­lyzes sales re­ports for the Illi­nois As­so­ci­a­tion of Real­tors, re­called the en­ergy cri­sis of the 1970s and how peo­ple used that to wrongly pre­dict the end of sub­ur­ban sprawl.

“Mov­ing is not cheap. Most peo­ple will not make a pre­cip­i­tous de­ci­sion a month or two into some­thing where you’re not quite sure how it will re­solve,” he said. “Let’s wait a few more months and see what hap­pens.”

In a way, that’s the most hope­ful mes­sage we can in­ter­nal­ize in the COVID-19 era. This, too, shall pass.

A WORD THAT COMES TO MIND ABOUT REAL ES­TATE IS “CHURN.” IT DE­SCRIBES EM­PLOY­ERS PON­DER­ING IF THEY NEED LESS SPACE — BE­CAUSE BUSI­NESS IS DOWN OR MORE STAFFERS ARE WORK­ING FROM HOME — OR MORE OF IT BE­CAUSE WORK­ERS ARE WOR­RIED ABOUT IN­FEC­TION IN CLOSE QUAR­TERS. IT’S THE CEN­TRAL QUES­TION OF THE DOWN­TOWN BUSI­NESS DIS­TRICT.

JAMES CAR­PEN­TER DE­SIGN AS­SO­CI­ATES/WEST CEN­TRAL AS­SO­CI­A­TION

A ren­der­ing shows a north­east view of pro­posed Ful­ton Mar­ket de­vel­op­ments.

JAMES CAR­PEN­TER DE­SIGN AS­SO­CI­ATES/WEST CEN­TRAL AS­SO­CI­A­TION

A ren­der­ing shows a north­east view of pro­posed Ful­ton Mar­ket de­vel­op­ments, with a project at 1234 W. Ran­dolph St. in the fore­ground. But how many projects will pro­ceed in a virus-in­spired re­ces­sion is an open ques­tion.

Robert Se­vim SAV­ILLS

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.