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Land Use & Real Estate

Photo by Jay Mullings on Unsplash

What We’re Seeing Now:

HOUSING

The housing market slowed at the onset of the pandemic, but things are heating back up. In early spring the real estate business in the United States was hit by the impacts of Covid-19 on all sides. Some cities banned in-person home showings, the supply chain of home-building materials was disrupted, and web traffic on real estate sites such as Zillow and Redfin dropped by nearly 40%. In addition, listings of new homes for sale dropped by as much as 70% in some markets and mortage applications dropped by almost 18% in early April. In May, sales were down across all price points but by early July some markets (such as Sacramento), have seen sales return to similar rates as this time last year.

The market for single-family luxury homes has continued to flourish as white-collar workers continue to work (remotely) during the pandemic and can afford to buy homes. One real estate broker in Texas is closing on a $1.2 million dollar house the buyers have never visited in person as property tours, buyer consultations, and open houses moved online. Covid-19 has pushed some young folks to buy their first home faster than they would have otherwise done to have more space to work from home or get out of cramped, expensive apartments. In many markets there is a greater demand than supply for new homes and some buyers have experienced tight bidding wars. Housing inventory dropped 29% since late June 2019, and prices may rise for several years as demand continues to exceed supply.

Rental markets in big cities such as New York face declining interest. Folks who can afford it are considering permanently leaving their expensive, urban rentals. Two thirds of people recently surveyed on Zillow who have been working from home during the pandemic said they would consider moving in order to continue having the ability to do so. In April in New York City, new leases declined by 70.9% compared with the same time last year. The market in San Francisco has also seen a drop in rental demand as some tech companies announced their employees will be able to work remotely (and out of state) indefinitely. In Chicago, one property management company is lowering the costs of some of their rentals by 8% to 10%.  

People experiencing homelessness are uniquely vulnerable during the COVID-19 pandemic, but some cities have quickly adapted to provide creative short-term housing options. One study found that the “age-adjusted Covid-19 mortality rate among homeless New Yorkers living in shelters was 61% higher than that of the general population in the city” (Schneider, CityLab). In addition, many homeless shelters were forced to shut down or reduce their capacity at the onset of the pandemic due to the rapid spread of COVID-19. However, cities such as Portland, New York, San Francisco, Los Angeles, and Seattle are quickly adapting by renting rooms at newly empty hotels to house people who are experiencing homeless during the COVID-19 pandemic. This short-term solution could have longer-term implications on land use and zoning if more types of spaces/businesses continue being used for housing.  

OFFICE

Working from home has changed the way many companies do business and lowered demand for office space, but the ability to work remotely is a privilege strongly correlated with income, education, and race. According to the Economic Policy Institute, “higher-wage workers are six times as likely to be able to work from home as lower-wage workers” and Black and Latinx workers are much less likely to be able to work from home than white and Asian workers. According to Pew data from March 2020, “About three-quarters of working-age adults with a postgraduate degree (73%) say they have worked from home as a result of the coronavirus outbreak, as do 62% of those with a bachelor’s degree. Far smaller shares of working-age adults with some college (35%) or with a high school diploma or less education (22%) say they have worked from home.” In addition, these numbers do not reflect those who have lost their jobs entirely due to the pandemic. If work from home trends continue, they will likely lower demand for white-collar office space while increasing the demand for housing types with more space for home offices for those who can afford it.  

Coworking spaces cope with current uncertainty in hopes of helping employers recover from Covid-19. Companies offering coworking spaces such as WeWork have faced demand freezes and financial challenges as many customers have shifted to working from home. The global market for coworking spaces is estimated to decline by almost 13% this year. In March, coworking spaces saw an almost 50% decline in usage. At the same time, new coworking spaces are opening in some cities and hope to help people transition back into offices with more flexibility than traditional office spaces.  

COMMERCIAL/RETAIL/RESTAURANT

Although restaurants and hotels have been hit the hardest in the short term, other small business sectors are vulnerable to permanent closures. Minority- and women-owned small businesses are particularly in danger of permanent closures due to longstanding structural disadvantages, as well as overrepresentation in sectors most devastated by COVID-19. McKinsey & Company analyzed the sectors of small businesses most vulnerable to permanent closures according to higher financial risk and degree affected by COVID. In decreasing order of total number of jobs, these sectors are: accommodations and food services, other services (except public administration), wholesale trade, transportation & warehousing, educational services, arts, entertainment and recreation. Service industries (accommodations and food services, personal and laundry services, and retail) have the highest share of minority owners and are most vulnerable to closures due to COVID. Minority- and women-owned businesses came into the pandemic with smaller revenues and less access to credit and continue to face issues; a survey by McKinsey found that 42% of minority-owned small businesses reported that obtaining credit was becoming increasingly difficult vs. 29% of all respondents. These vulnerable small businesses typically occupy industrial, mixed use, and commercial zones of the built environment and will have cascading impacts on communities if they permanently close.  

Already weakened pre-COVID, bankruptcy and store closings of department store anchors leave malls considering adaptation and redevelopment. As of June, CoStar Group reported 84% of US malls “healthy” with a vacancy rate of 10% or less, down from 94% in 2004. Analysts from Green Street forecasted that more than half of mall-based department stores would close by the end of 2021 and Coresight Research estimated that 25% of US malls are in danger. Cascading impacts of COVID on buyer behavior is likely to impact already struggling malls the most, rather than indoor vs. outdoor. Analysis from Placer.ai of cell phone data at top indoor and outdoor malls found better-than-anticipated recovery; by June 8th indoor center visits were down 41.7% year-over-year vs. 33.5% for outdoor centers. Pre-COVID, restaurants, entertainment, and gyms were strong contenders to fill the voids of former department stores, but with those uses weakened by public health concerns, malls may transition to more non-commercial uses. For example, Alderwood Mall north of Seattle has an adaptive reuse project to turn parts of the shopping center into a 300-unit apartment complex and the Westside Pavilion in West LA is redeveloping as a Class-A creative office Google campus, One Westside.  

WAREHOUSING/INDUSTRIAL

Though industrial real estate activity fell by 29% between March and April, the sector has recovered more quickly than anticipated, driven in part by a demand for warehousing. According to real estate firm CBRE Group, industrial lease renewals and new leases jumped 43% from mid-April to mid-May compared to the previous 30-day period. There has been a surge in demand for warehousing space as e-commerce has increased and retailers and other businesses have had to rely more heavily, or sometimes entirely, on online sales. While demand for warehouses of 100,000 square feet or more has remained fairly steady, there’s been an accelerated shift in demand for fulfillment centers located closer to population centers.

Industrial and manufacturing sites such as warehouses and meat, poultry, seafood, and agricultural processing facilities are linked to multiple COVID-19 outbreaks around the country, disproportionately impacting BIPOC communities. The food production sector has been hit especially hard by COVID-19 since assembly-line organized facilities make it difficult to maintain physical distancing, and in some instances, employers have been slow to institute precautionary measures to protect workers. As a result, workplace outbreaks have been associated with companies such as Tyson Foods, Smithfield Foods, Allan Bros., and Amazon. Hotspots have also developed in agricultural centers such as Yakima Valley in Washington and San Joaquin Valley in California, contributing to the disproportionate impact that COVID-19 has had on Latinx people and other BIPOC communities. Migrant farmworkers are particularly vulnerable since they not only work in close proximity, but many also live in cramped dorm-like quarters. In the short-term, companies need to adopt measures that better protect workers while in the long-term, land use codes for industrial and warehousing facilities may need to be updated to account for additional safety measures.


Potential Long-Term Issues and Questions:  

HOUSING

Will big cities become less attractive and how will this impact residential real estate markets? As the pandemic wears on, some who can afford to are moving out of once-hopping cities in favor of smaller suburban settings. The expense of big-city rents, as well as the loss of the cultural, entertainment, and nightlife opportunities that are now missing from larger urban areas may cause many to reconsider whether living in large cities is an attractive option for the long term. Real estate listing site Zumper reports that searches for rentals in San Francisco and New York City have fallen by 36% and 29% respectively since the beginning of the pandemic. It is unclear whether this shift toward suburban preferences is a natural progression of a pre-COVID trend, a trend that was expedited by the pandemic, or a trend due to the effects of COVID-19.

An analysis of Census estimates by the Metropolitan Policy Program at Brookings shows that populations in America’s major metropolitan areas have been declining since 2015, with urban population growth rates shrinking by 50% since 2010. If the burgeoning preference shift toward suburban living is exacerbated by the economic impacts of COVID-19 shuttering businesses and decreasing office populations in large cities, the feel and fabric of downtowns and urban cores could change significantly in the future.  

The market for multifamily development faces an uncertain future as massive job losses have reduced tenant’s ability to pay. There have been many band-aid solutions such as rent reductions and eviction moratoriums to abate the economic disruption of the pandemic on people’s housing stability, but it remains to be seen whether these types of protections will remain throughout the duration of the pandemic. People’s ability (or inability) to pay for their housing could impact the demand and pricing of multifamily housing. On the other hand, income losses might keep people from becoming homeowners, therefor keeping the rental market for multifamily development stronger. So far, the market has remained relatively stable with occupancy rates only dropping wo-to-five percentage points. However, with the additional $600 per week of unemployment benefits from the CARES act expiring at the end of July, many renters may soon be unable to pay for housing.

Historic levels of housing instability, unemployment, and economic disruption could severely exacerbate the homelessness crisis and racial housing inequities the U.S. already faced. What can cities do to protect folks from eviction and provide housing for people experiencing homelessness? One study shows that evictions filed during the pandemic are disproportionately concentrated in Black and immigrant neighborhoods, as high as 78% in Boston. Another study predicts up to a 45% spike in overall homelessness within a year. This potential eviction crisis could drastically increase longstanding housing inequities BIPOC communities face. Homelessness advocates are calling for a $100 billion rental assistance package to help ensure that people who cannot pay their rents and mortgages do not fall into homelessness. Others are advocating for housing payments to be fully canceled for the duration of the crisis. California Governor Gavin Newsom plans to purchase some of the hotels currently being used to house homeless individuals during the crisis to provide long-term housing.  

OFFICE

Working from home has a fraught history and has previously failed to truly take hold. However, moving forward more folks will likely be able to work remotely more of the time. This will likely impact demand for different types of real estate and where it is located. Large companies such as Twitter, Facebook, Shopify, and Zillow are developing plans for their employees to work remotely forever. According to Gensler’s U.S. Work from Home Survey 2020, most respondents want the ability to work from home part of the time. More employees working from home might have an increased willingness to live farther from their offices, require less in-person office space, or prefer larger homes with space for home offices. Some employees have been more productive working from home and companies may be able to reduce their real-estate costs by allowing employees to continue working remotely. McKinsey research indicates that the usage of main offices will decline by 12% and work from home will increase from 20 to 27% of work time. Based on these predictions, they estimate that organizations could reduce their real-estate costs by 30% or almost eliminate them if there is a full shift to virtual work.  

Flexible and shared office spaces such as WeWork could help white collar companies adapt for Covid-19 office safety. Coworking spaces can provide flexibility and options for companies looking to quickly and affordably set up offices in various locations. An average office redesign can take between 12 and 18 months, so this flexibility could help companies bring their office employees back to work with less hassle. In April, WeWork began adapting their spaces in China to better meet the needs of folks working amidst the pandemic and has since invested tens of millions of dollars in preparing their spaces for people returning to work. In New York City, 31% of the city’s white-collar workers already live within a 15-minute walk of one of WeWork’s over one hundred spaces in the city.

COMMERCIAL/RETAIL/RESTAURANT

Chain retailers have not paid rent for months, which could have long-term impacts across the commercial real estate market. Simon Property Group, the largest mall operator in the US, sued Gap for nearly $66 million in unpaid rent in April, May, and June.  Other major chain retailers are negotiating for reduced and delayed rent payments. After receiving around a quarter of rents in April and May, CBL, a REIT owner of over 100 mall properties that was already struggling before the pandemic, missed an $11.8 million interest payment in June and is in talks with lenders for restructuring. The long-term future of malls looks bleak; Coresight research predicts 25,000 retail stores will close permanently this year, with over half the store closures in malls.  

There may be increased demand for commercial real estate in neighborhoods and suburbs if businesses shift from being concentrated in Central Business districts to accommodate people spending more time living and working from home. If the shift towards working from home continues, neighborhood coffee shops, bars, and restaurants will become more essential to meet demand and there could be a significant boost in neighborhood commercial retail and real estate. The longer office workers continue to work from home, the more likely downtown lunch break spots, coffee shops, and retailers will be unable to reopen or will need to relocate into neighborhoods, suburbs, and town centers to be successful in a post-pandemic world. Even the largest business district in the country in Manhattan may face a “real estate reckoning” (Haag, NYT) as the future of large office buildings remains uncertain. Entire economic ecosystems have been built around business districts such as Manhattan and retail stores of all kinds have been dependent on office workers for survival.    

WAREHOUSING/INDUSTRIAL

Long-term demand for warehousing space is expected to increase as companies to respond to the increase in e-commerce and opt to keep more “safety stock” on hand. Prior to the pandemic, many companies operated with a lean-inventory strategy, keeping just enough supply on hand to meet usual levels of demand. With the supply chain throw into disarray after the initial lockdown in China followed by lockdowns across the U.S., real estate experts are expecting that companies will soften their lean-inventory approach in favor of keeping more supply on hand. This shift would necessitate more storage space overall, as well as a more dispersed network of warehouses. Additionally, with people purchasing more fresh foods online since the start of the pandemic the demand for cold storage facilities is expected to rise.  

Learn about new trends in land use and how new mobility might change the way we use land in cities in Urbanism Next's collection of Land Use Potential Impacts pages on the NEXUS.

Urbanism Next published two reports, Covid-19– Impacts on Cities and Suburbs series: Key Takeaways Across Multiple Sectors and Impacts to the Urbanism Next Framework that explore a wide how urban environments and urban actors are changing as a result of the Covid-19 pandemic.

What We’re Seeing Now:

HOUSING

The housing market slowed at the onset of the pandemic, but things are heating back up. In early spring the real estate business in the United States was hit by the impacts of Covid-19 on all sides. Some cities banned in-person home showings, the supply chain of home-building materials was disrupted, and web traffic on real estate sites such as Zillow and Redfin dropped by nearly 40%. In addition, listings of new homes for sale dropped by as much as 70% in some markets and mortage applications dropped by almost 18% in early April. In May, sales were down across all price points but by early July some markets (such as Sacramento), have seen sales return to similar rates as this time last year.

The market for single-family luxury homes has continued to flourish as white-collar workers continue to work (remotely) during the pandemic and can afford to buy homes. One real estate broker in Texas is closing on a $1.2 million dollar house the buyers have never visited in person as property tours, buyer consultations, and open houses moved online. Covid-19 has pushed some young folks to buy their first home faster than they would have otherwise done to have more space to work from home or get out of cramped, expensive apartments. In many markets there is a greater demand than supply for new homes and some buyers have experienced tight bidding wars. Housing inventory dropped 29% since late June 2019, and prices may rise for several years as demand continues to exceed supply.

Rental markets in big cities such as New York face declining interest. Folks who can afford it are considering permanently leaving their expensive, urban rentals. Two thirds of people recently surveyed on Zillow who have been working from home during the pandemic said they would consider moving in order to continue having the ability to do so. In April in New York City, new leases declined by 70.9% compared with the same time last year. The market in San Francisco has also seen a drop in rental demand as some tech companies announced their employees will be able to work remotely (and out of state) indefinitely. In Chicago, one property management company is lowering the costs of some of their rentals by 8% to 10%.  

People experiencing homelessness are uniquely vulnerable during the COVID-19 pandemic, but some cities have quickly adapted to provide creative short-term housing options. One study found that the “age-adjusted Covid-19 mortality rate among homeless New Yorkers living in shelters was 61% higher than that of the general population in the city” (Schneider, CityLab). In addition, many homeless shelters were forced to shut down or reduce their capacity at the onset of the pandemic due to the rapid spread of COVID-19. However, cities such as Portland, New York, San Francisco, Los Angeles, and Seattle are quickly adapting by renting rooms at newly empty hotels to house people who are experiencing homeless during the COVID-19 pandemic. This short-term solution could have longer-term implications on land use and zoning if more types of spaces/businesses continue being used for housing.  

OFFICE

Working from home has changed the way many companies do business and lowered demand for office space, but the ability to work remotely is a privilege strongly correlated with income, education, and race. According to the Economic Policy Institute, “higher-wage workers are six times as likely to be able to work from home as lower-wage workers” and Black and Latinx workers are much less likely to be able to work from home than white and Asian workers. According to Pew data from March 2020, “About three-quarters of working-age adults with a postgraduate degree (73%) say they have worked from home as a result of the coronavirus outbreak, as do 62% of those with a bachelor’s degree. Far smaller shares of working-age adults with some college (35%) or with a high school diploma or less education (22%) say they have worked from home.” In addition, these numbers do not reflect those who have lost their jobs entirely due to the pandemic. If work from home trends continue, they will likely lower demand for white-collar office space while increasing the demand for housing types with more space for home offices for those who can afford it.  

Coworking spaces cope with current uncertainty in hopes of helping employers recover from Covid-19. Companies offering coworking spaces such as WeWork have faced demand freezes and financial challenges as many customers have shifted to working from home. The global market for coworking spaces is estimated to decline by almost 13% this year. In March, coworking spaces saw an almost 50% decline in usage. At the same time, new coworking spaces are opening in some cities and hope to help people transition back into offices with more flexibility than traditional office spaces.  

COMMERCIAL/RETAIL/RESTAURANT

Although restaurants and hotels have been hit the hardest in the short term, other small business sectors are vulnerable to permanent closures. Minority- and women-owned small businesses are particularly in danger of permanent closures due to longstanding structural disadvantages, as well as overrepresentation in sectors most devastated by COVID-19. McKinsey & Company analyzed the sectors of small businesses most vulnerable to permanent closures according to higher financial risk and degree affected by COVID. In decreasing order of total number of jobs, these sectors are: accommodations and food services, other services (except public administration), wholesale trade, transportation & warehousing, educational services, arts, entertainment and recreation. Service industries (accommodations and food services, personal and laundry services, and retail) have the highest share of minority owners and are most vulnerable to closures due to COVID. Minority- and women-owned businesses came into the pandemic with smaller revenues and less access to credit and continue to face issues; a survey by McKinsey found that 42% of minority-owned small businesses reported that obtaining credit was becoming increasingly difficult vs. 29% of all respondents. These vulnerable small businesses typically occupy industrial, mixed use, and commercial zones of the built environment and will have cascading impacts on communities if they permanently close.  

Already weakened pre-COVID, bankruptcy and store closings of department store anchors leave malls considering adaptation and redevelopment. As of June, CoStar Group reported 84% of US malls “healthy” with a vacancy rate of 10% or less, down from 94% in 2004. Analysts from Green Street forecasted that more than half of mall-based department stores would close by the end of 2021 and Coresight Research estimated that 25% of US malls are in danger. Cascading impacts of COVID on buyer behavior is likely to impact already struggling malls the most, rather than indoor vs. outdoor. Analysis from Placer.ai of cell phone data at top indoor and outdoor malls found better-than-anticipated recovery; by June 8th indoor center visits were down 41.7% year-over-year vs. 33.5% for outdoor centers. Pre-COVID, restaurants, entertainment, and gyms were strong contenders to fill the voids of former department stores, but with those uses weakened by public health concerns, malls may transition to more non-commercial uses. For example, Alderwood Mall north of Seattle has an adaptive reuse project to turn parts of the shopping center into a 300-unit apartment complex and the Westside Pavilion in West LA is redeveloping as a Class-A creative office Google campus, One Westside.  

WAREHOUSING/INDUSTRIAL

Though industrial real estate activity fell by 29% between March and April, the sector has recovered more quickly than anticipated, driven in part by a demand for warehousing. According to real estate firm CBRE Group, industrial lease renewals and new leases jumped 43% from mid-April to mid-May compared to the previous 30-day period. There has been a surge in demand for warehousing space as e-commerce has increased and retailers and other businesses have had to rely more heavily, or sometimes entirely, on online sales. While demand for warehouses of 100,000 square feet or more has remained fairly steady, there’s been an accelerated shift in demand for fulfillment centers located closer to population centers.

Industrial and manufacturing sites such as warehouses and meat, poultry, seafood, and agricultural processing facilities are linked to multiple COVID-19 outbreaks around the country, disproportionately impacting BIPOC communities. The food production sector has been hit especially hard by COVID-19 since assembly-line organized facilities make it difficult to maintain physical distancing, and in some instances, employers have been slow to institute precautionary measures to protect workers. As a result, workplace outbreaks have been associated with companies such as Tyson Foods, Smithfield Foods, Allan Bros., and Amazon. Hotspots have also developed in agricultural centers such as Yakima Valley in Washington and San Joaquin Valley in California, contributing to the disproportionate impact that COVID-19 has had on Latinx people and other BIPOC communities. Migrant farmworkers are particularly vulnerable since they not only work in close proximity, but many also live in cramped dorm-like quarters. In the short-term, companies need to adopt measures that better protect workers while in the long-term, land use codes for industrial and warehousing facilities may need to be updated to account for additional safety measures.


Potential Long-Term Issues and Questions:  

HOUSING

Will big cities become less attractive and how will this impact residential real estate markets? As the pandemic wears on, some who can afford to are moving out of once-hopping cities in favor of smaller suburban settings. The expense of big-city rents, as well as the loss of the cultural, entertainment, and nightlife opportunities that are now missing from larger urban areas may cause many to reconsider whether living in large cities is an attractive option for the long term. Real estate listing site Zumper reports that searches for rentals in San Francisco and New York City have fallen by 36% and 29% respectively since the beginning of the pandemic. It is unclear whether this shift toward suburban preferences is a natural progression of a pre-COVID trend, a trend that was expedited by the pandemic, or a trend due to the effects of COVID-19.

An analysis of Census estimates by the Metropolitan Policy Program at Brookings shows that populations in America’s major metropolitan areas have been declining since 2015, with urban population growth rates shrinking by 50% since 2010. If the burgeoning preference shift toward suburban living is exacerbated by the economic impacts of COVID-19 shuttering businesses and decreasing office populations in large cities, the feel and fabric of downtowns and urban cores could change significantly in the future.  

The market for multifamily development faces an uncertain future as massive job losses have reduced tenant’s ability to pay. There have been many band-aid solutions such as rent reductions and eviction moratoriums to abate the economic disruption of the pandemic on people’s housing stability, but it remains to be seen whether these types of protections will remain throughout the duration of the pandemic. People’s ability (or inability) to pay for their housing could impact the demand and pricing of multifamily housing. On the other hand, income losses might keep people from becoming homeowners, therefor keeping the rental market for multifamily development stronger. So far, the market has remained relatively stable with occupancy rates only dropping wo-to-five percentage points. However, with the additional $600 per week of unemployment benefits from the CARES act expiring at the end of July, many renters may soon be unable to pay for housing.

Historic levels of housing instability, unemployment, and economic disruption could severely exacerbate the homelessness crisis and racial housing inequities the U.S. already faced. What can cities do to protect folks from eviction and provide housing for people experiencing homelessness? One study shows that evictions filed during the pandemic are disproportionately concentrated in Black and immigrant neighborhoods, as high as 78% in Boston. Another study predicts up to a 45% spike in overall homelessness within a year. This potential eviction crisis could drastically increase longstanding housing inequities BIPOC communities face. Homelessness advocates are calling for a $100 billion rental assistance package to help ensure that people who cannot pay their rents and mortgages do not fall into homelessness. Others are advocating for housing payments to be fully canceled for the duration of the crisis. California Governor Gavin Newsom plans to purchase some of the hotels currently being used to house homeless individuals during the crisis to provide long-term housing.  

OFFICE

Working from home has a fraught history and has previously failed to truly take hold. However, moving forward more folks will likely be able to work remotely more of the time. This will likely impact demand for different types of real estate and where it is located. Large companies such as Twitter, Facebook, Shopify, and Zillow are developing plans for their employees to work remotely forever. According to Gensler’s U.S. Work from Home Survey 2020, most respondents want the ability to work from home part of the time. More employees working from home might have an increased willingness to live farther from their offices, require less in-person office space, or prefer larger homes with space for home offices. Some employees have been more productive working from home and companies may be able to reduce their real-estate costs by allowing employees to continue working remotely. McKinsey research indicates that the usage of main offices will decline by 12% and work from home will increase from 20 to 27% of work time. Based on these predictions, they estimate that organizations could reduce their real-estate costs by 30% or almost eliminate them if there is a full shift to virtual work.  

Flexible and shared office spaces such as WeWork could help white collar companies adapt for Covid-19 office safety. Coworking spaces can provide flexibility and options for companies looking to quickly and affordably set up offices in various locations. An average office redesign can take between 12 and 18 months, so this flexibility could help companies bring their office employees back to work with less hassle. In April, WeWork began adapting their spaces in China to better meet the needs of folks working amidst the pandemic and has since invested tens of millions of dollars in preparing their spaces for people returning to work. In New York City, 31% of the city’s white-collar workers already live within a 15-minute walk of one of WeWork’s over one hundred spaces in the city.

COMMERCIAL/RETAIL/RESTAURANT

Chain retailers have not paid rent for months, which could have long-term impacts across the commercial real estate market. Simon Property Group, the largest mall operator in the US, sued Gap for nearly $66 million in unpaid rent in April, May, and June.  Other major chain retailers are negotiating for reduced and delayed rent payments. After receiving around a quarter of rents in April and May, CBL, a REIT owner of over 100 mall properties that was already struggling before the pandemic, missed an $11.8 million interest payment in June and is in talks with lenders for restructuring. The long-term future of malls looks bleak; Coresight research predicts 25,000 retail stores will close permanently this year, with over half the store closures in malls.  

There may be increased demand for commercial real estate in neighborhoods and suburbs if businesses shift from being concentrated in Central Business districts to accommodate people spending more time living and working from home. If the shift towards working from home continues, neighborhood coffee shops, bars, and restaurants will become more essential to meet demand and there could be a significant boost in neighborhood commercial retail and real estate. The longer office workers continue to work from home, the more likely downtown lunch break spots, coffee shops, and retailers will be unable to reopen or will need to relocate into neighborhoods, suburbs, and town centers to be successful in a post-pandemic world. Even the largest business district in the country in Manhattan may face a “real estate reckoning” (Haag, NYT) as the future of large office buildings remains uncertain. Entire economic ecosystems have been built around business districts such as Manhattan and retail stores of all kinds have been dependent on office workers for survival.    

WAREHOUSING/INDUSTRIAL

Long-term demand for warehousing space is expected to increase as companies to respond to the increase in e-commerce and opt to keep more “safety stock” on hand. Prior to the pandemic, many companies operated with a lean-inventory strategy, keeping just enough supply on hand to meet usual levels of demand. With the supply chain throw into disarray after the initial lockdown in China followed by lockdowns across the U.S., real estate experts are expecting that companies will soften their lean-inventory approach in favor of keeping more supply on hand. This shift would necessitate more storage space overall, as well as a more dispersed network of warehouses. Additionally, with people purchasing more fresh foods online since the start of the pandemic the demand for cold storage facilities is expected to rise.