TOMLINSON’S TAKE
6
Forget COVID, full speed ahead with real estate trends.
More than 40 million Americans have applied for unemployment benefits since the pandemic began, and tens of millions more are working from home with fingers crossed that they don’t end up in the same boat.
Some real estate pundits are proclaiming the end of the office, while others expect a strong bounce back as people long to see their coworkers and get away from their families.
Honestly, no one knows what will happen. We don’t know how long the pandemic will last, or how long people will be jobless, or how much wealth the recession will destroy.
That last unknown is the big one for real estate. How much money people have to invest dictates real estate values, and we will not have an answer to that question for some time.
Economic data are untrustworthy right now. American wages appear to be going up, but that’s a case of skewed statistics because so many low-income people have lost their jobs.
Stock markets have rallied, but stock values remain below February peaks, and most people think they are overvalued. The same is true of copper prices, a bellwether of economic growth and construction.
Home prices appear to be rising, but that’s because there are fewer houses on the market, and most of them are high-end. Lowand middle-income people are staying put, worried about their future.
On the global scale, the pandemic has undoubtedly destroyed tens of trillions of dollars in wealth, and that money is no longer available to invest in real estate.
Who is going to pay the full price for an office building until there is a vaccine? How many people can afford to pay the 2019 valuation of a home when so many jobs are at risk?
Banks are not helping. Management teams can see a wave of bankruptcies and loan defaults on the horizon, and they are tightening up lending standards. Mortgage rates may be low, but so is the approval rate.
Like everyone else, bankers are wondering how long the recession will last. Few are foreclosing yet thanks to Congress ordering federally-backed mortgage lenders to provide forbearance. But that will end next month, and then the bloodletting will begin.
Savvy investors with cash are salivating at the chance to take advantage of distressed buyers.
Recessions and real estate bubbles are so routine in this country; there is a whole class of investor who does little more than wait for times like this.
The uncertainty, though, leaves real estate professionals in a horrible purgatory, waiting for the balance to tip toward recovery or recession. The best advice I keep reading is to forget about COVID-19, reset your mind to New Year’s Day. What would you have done then?
January is when we often reflect on the past and make resolutions for the year. Thoughtful business people try to predict the next big trend and how to profit from it. Too often, though, we get caught up in the moment and never get around to our grand plans.
Despite COVID, the trends that were apparent in January remain true today. Dispersed teams, remote working, multipurpose developments, smaller footprints, less retail. All of these things were on the horizon in January, and they are even closer today.
Two-thirds of CEOs at startups polled by management consulting firm Kung Group said they are considering closing their offices or at least downsizing. More than 70 percent will let their employees continue to work from home after their offices reopen.
CEO Jocelyn Kung said her survey shows tech companies are looking to open offices in less expensive cities with lower costs of living to save themselves, and their employees, money on office space and housing. San Antonio and Houston could benefit, but not necessarily office towers.
“The design of the offices, the purpose of coming to the office is probably fundamentally going to change so that fewer people are coming to the office to do work and more coming in for important meetings,” she said.
Workers will also start looking for homes with rooms they can set aside as a home office, which argues for Texas cities with larger homes. Kung said she expects cities with less expensive homes and offices to attract frugal companies and workers.
We will find ways to cope with COVID-19; the economic disruption is temporary. Human nature, though, will not change, and neither will long-term trends. People want affordable spaces that suit their needs.
Do not get caught up in purgatory thinking, keep tracking those trends and keep innovating. Every painful downturn presents opportunities for those who can keep their wits about them.