Anirban Basu leads the Baltimore-based Sage Policy Group, an economic consulting firm that works with many industries, including commercial real estate. During a webinar with NAIOP DC|MD this week, he answered several questions from attendees about the COVID-19 pandemic and its effects on the industry.
Q: Which industry sectors will most likely suffer permanent damage, and why?
A: I think this will have a permanent effect on commercial real estate. There are going to be some adjustments.
Brick-and-mortar retail will take a hit. So many people now have a DoorDash account or a GrubHub account. There are going to be a lot of empty storefronts, and we already had so many retailers on the verge. Last year was a record year for store closings, even with consumers spending aggressively… Now imagine what happens. The retail part of commercial real estate is really going to struggle.
Data centers will be strong, because with more of us working online, so much more data needs to be in the cloud.
High-priced office space, and new construction in particular, is going to see a hit. People are going to be thinking about what kinds of commitments they’re going to make, and cash is king right now. If you’re trying to preserve cash, that doesn’t take you into A-plus office space necessarily. And if you do use A-plus office space, you’ll probably try to really ration it and use as little as possible. You’ll have more people telework if possible.
Q: Will there be more slack in the labor market once this recovery begins?
A: Yes. We had 4% unemployment before the crisis and some people think we can get back to that shortly after it’s over, but I think that’s nonsense. A lot of people got jobs not because they were especially gifted but because there was so much work to get done. Employers have just been consuming human capital. Now, there’s going to be a great shakeout, meaning that employers are going to be looking at their staffing levels and start asking, “Who do I really need? Who are my best performers?”
Q: Will the Washington, D.C., region’s reliance on “meds and feds” (health sciences and government) help the area weather the storm?
A: Oh, undoubtedly. The unemployment rate won’t rise as high as other parts of the country, but it’s still going to be nasty. Now, if the federal government ends up spending trillions of dollars on this, and then the national debt balloons from $23.5 trillion to $28 trillion, we’ll have some impeding issues in the D.C. region with national debt. That could actually position the area for worse times at some point in the future when the federal government presumably begins to address its deficit-and-debt demons. But in the short term, the D.C. area will actually be one of the strongest economies in the country.
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