“What people are doing is extrapolating that New York City, Chicago, Los Angeles, they’re all going to cease to exist,” Austan Goolsbee told the gathering of real estate professionals. “I think it’s confused. If you think about it, this temporary period, once it passes, we’re going to go back to discovering that people like to go to meetings, that the deal gets done when you can meet in person, that our productivity gets higher, our pay is higher when we’re bouncing ideas off each other.
“I find it very hard to believe that [the remote work] part of COVID is going to be forever.” Goolsbee, an economics professor at the University of Chicago’s Booth School of Business, is a former economic adviser to President Barack Obama. Goolsbee’s theme Tuesday was to compare which changes brought on by the pandemic are forever and which are temporary.
Later in the session, Goolsbee was joined by two real estate executives in a discussion on the economy and the state of the industry, from remote work to demand for office towers and data centers. They were moderator Connie Moore, chairman of Columbia Property Trust and former CEO of BRE Properties, and Roy March, CEO of real estate investment bank and property sales brokerage Eastdil Secured.
ULI’s meeting comes as real estate owners try to predict how the health crisis will change their industry as they weigh investment opportunities. Goolsbee’s words were mostly encouraging for property owners who can weather today’s uncertainty.
Goolsbee’s discussion also spanned toilet paper shortages to politics. “On the question of what about this is forever, I am of the bias that anything that COVID does that piles on an existing trend is likely to be forever and anything where COVID pushes back against what is a multidecade trend I find hard to believe that in five years we’re still going to see that,” Goolsbee said.
Growth in E-Commerce, CitiesThat means e-commerce will continue gaining in popularity, for example, which will keep driving demand for warehouse space. Supply-chain problems and inflation will remain shorter-term issues, he said.
Cities will resume growing because “from the time of the ‘Hamilton’ musical in 1789 to today, every census of the United States, the urbanization rate has gotten higher.”
He added that “it’s been a nonstop increase in the urbanization rate in the United States and in every rich country because we’re more productive when we’re together. That’s a simple, basic fact in the data.”
The comeback for cities in part will be fueled by workers returning in large numbers to offices, Goolsbee said, whether it’s because of employees noticing they’re working more hours remotely or bosses pushing for their return.
“You’ll start to perhaps see the employers say, ‘Yes, you can work from home and you won’t be paid as much,’” Goolsbee said. Workers may also be motivated by the lack of in-person interaction, mentoring and career development, the panelists said. “The first downturn that we ever do have again, those that are in the office might be those that survive” layoffs, Moore said.
Diversifying Office BuildingsAs economists and executives worldwide debate whether remote work is here to stay, office towers are challenging to sell, March said.
“People are trying to assess, how are we going to underwrite lease-up and vacancy, rental-rate growth, demand and the like,” March said. “If you’re faced with a six- to seven-year average weighted lease term, it’s tough to get the buyer and seller to come to terms with where that has to price today.”
Some office buildings could be converted to other uses, such as residential or lab space. “Everybody who has space in their building thinks it’s a life science conversion,” March said. “Guilty as charged, by the way. We’ve got a few of those conversion opportunities in the market right now.” Data centers, Sun Belt apartments, life science research space and warehouses are among the properties thriving during the pandemic, with the annual rates of return falling amid strong competition from buyers, March said.
“Retail was lagging, particularly in the mall space,” March said. “That got accelerated with the lockdowns and the pandemic. While it’s going to be a slower-growth recovery, it’s probably going to consolidate something that was going to happen over the next several years into what happened over the course of 12 months.
“Having said that, open-air strip centers and lifestyle-experience-oriented types of retail, we’re seeing that not only in pre-COVID pricing but inside pre-COVID pricing.”
Source: CoStar Group, www.costar.com