What does a return to work mean for CRE?
As REITs are pounded, CRE investors and lessors scramble
As global governments ponder the “return to normalcy” and re-start of the global economy through new return to work policies, there are several recommendations from virologists and economists as to best practices for getting back to work:
- Antibody Testing and Plasma Work
- Shifts and Social Distancing at the Workplace
- Three Days of Non-Symptoms for Covid-19 before Return to Work
- Two Negative Covid-19 Tests – requires that immediate access to testing and fast results reporting will be vital to the re-start
“This may be the new normal,” says Dr. Joseph Fair, a virologist and CNN chief science correspondent. “We might see the seasonable dip but we have no pre-existing immunity to this virus. Longer daylight could help us.” To help employers through the return to work process, the American Society of Safety Professionals has published an excellent guide that summarizes CDC guidelines for non-healthcare workers to return to work.
The Unacast Covid-19 Social Distancing Scoreboard also provides some insights as to how US states and regions have responded to the pandemic. Hard hit states like New York and Illinois still only score a C and a D+ respectively on the scoreboard for changes in average distances travelled (partly explained by the human population densities of New York City and Chicago).
What happens in these economic hubs upon re-start? Logic, this week's meltdown in U.S. pork meat markets after an outbreak at a major processing plant, and the early 'return-to-normal' experiences of Italy and South Korea tell us the risk of secondary breakout is a very real concern.
Further north, earning top marks for social distancing (B: a total reduction of 80 to 94 percent of human interaction) has not been enough to slow the spread of Covid-19 in Michigan, eliminating any possibility of a return to work in the next few weeks. Given Canada's indication that it will not re-open the U.S. border for business for weeks or even months, Michigan's manufacturing-reliant economy and specifically Detroit’s virtually shuttered automotive industry will struggle to re-open in the face of disrupted supply chains.
Even if individual states are ready to go back to work, the nation may not be. As early as March 15, 2020, the Centers for Disease Control recommended an 8-week moratorium on gatherings of more than 50 people -- that would take us to mid-May (it's April 16th as of this writing). So how do we reconcile the desire to get back to work locally with the need to stay apart globally?
The answer is commercial real estate that permits Social Distancing At Work.
Expansion of space is vital to ward-off against a second wave of coronavirus infection and disease. While investors are punishing Real Estate Investment Trusts (REITs) right now, a contrarian view might be helpful to the CRE sector. Flexibility by CRE Leasing Agents will be the key to return-to-work scenarios.
One example of such flexibility is found in Cadence, a company in New York cited in a recent story by TechCrunch: “Consider Nelson Chu, the founder and CEO of Cadence, a seed-stage, 17-person securitization platform startup in New York. After recently landing $4 million in funding, Cadence signed a lease last month with a landlord who has agreed to start charging the outfit only when it is able to move into its new uptown digs.”
The story goes on to cite CBRE Research Analyst Colin Yasukochi, who shared that 3.2 million square feet of commercial office space is available in San Francisco alone. The city and its technology corridor have seen a 30% drop in leasing. “Remote Work is something we are thinking about a lot right now,” he told TechCrunch.
Earlier this year, CBRE presented a rosier forecast: “’Barring any unforeseen risks,’ it said at the time, ‘resilient economic activity, strong property fundamentals, low interest rates and the relative attractiveness of real estate as an asset class’ suggested that 2020 would be a ‘very good year’ for commercial real estate.”
2020 still can be a very good year for CRE, REITs, and proptechs that can make the pivot to business models that are healthy for both economies and people.