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The announcement of successful vaccine trials and new concepts of employee work environments may be good news for the industry

 

It’s no secret that the COVID-19 pandemic and accompanying lockdown have inflicted severe damage upon the world economy. That’s been true of commercial real estate (CRE), at least in some sectors. The hospitality industry — and with it, that segment of the CRE market — has taken a major hit as the public has hunkered down and suspended plans to travel, stay in hotels and take cruises. People have been apprehensive about dining at restaurants, seriously affecting that part of the economy as well. The office sector has also sustained damage as more and more people work at home to avoid contact with others.

However, there are a few developments worth noting that offer welcome glimmers of hope. The first are the announcements in November of successful COVID-19 vaccine trials. The first came from Pfizer and its collaborator BioNTech, which claim to have performed successful trials of a vaccine with a success rate of up to 90 percent. Within a week of that report came an announcement from Moderna that its coronavirus vaccine is 94.5 percent effective.

Another development is talk about new ways of structuring work: for example, a “near home” model of office life. This could have positive implications for the CRE office market.

The coming vaccine

The announcement of successful vaccine trials caused an immediate uptick in certain real estate investments, such as apartment REITs. As the vaccines go through the FDA approval process, it’s reasonable to expect consumer confidence to grow across the economy.

Many companies in the hospitality industry saw gains immediately after the initial vaccine news. For example, Host Hotels & Resorts Inc. was up more than 30 percent. Marriott International gained nearly 14 percent and Choice Hotels, nearly 9 percent.

When the public finally starts taking a vaccine, many people will probably feel greater liberty to go about their daily lives. That means taking vacations, booking hotel rooms, and all that goes along with those activities. It’s likely we will see restaurants fill up again and retail outlets begin to get more foot traffic.

As those things become a reality, many of us hope to see a greater demand for hospitality, office, and retail CRE. After all, no one wants to buy real estate that’s likely to sit idle. Increased use leads to increased demand.

New concepts of office work

One of the most pronounced changes since the lockdown has been the trend of employees working from home instead of coming into the office — currently a reality for 42 percent of the U.S. labor force. Obviously, this hasn’t been a positive development for the CRE office building market.

Some companies consider working at home a standard practice for the foreseeable future. Media analysts, too, predict that a daily trip to the office will no longer be a major part of corporate culture.

Others, however, talk about a hybridization of office and home work. For example, work could entail a combination of two days at home and three at the office.

But the latest talk in the corporate world and the media is about the “near home” concept, which involves satellite locations in the areas employees live. Instead of a system that requires employees to funnel into a large, central headquarters, it reflects more of a “hub-and-spoke” model. Companies may rent multiple spaces, geographically spreading out their office personnel.

The “near home” concept could prove beneficial for the CRE office sector. If the idea catches on, it would be reasonable to expect a strong market for these satellite workspaces, driving future growth.

The important thing is that people and institutions will adapt to new realities. And that may be what we’re seeing here: the spontaneous emergence of a new business culture.

Only time will tell how these ideas will shake out.  But the future may be starting to shape up.

Matt Christian | Managing Director
SVN | Commercial Advisory Group

 

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