How This Recession Will Be Different

Regardless of whether the economic recovery is relatively quick or more protracted, it is clear that COVID-19 will have a lasting impact, says David Stern of Townhouse Partners.
David Stern

While real estate stock values remain depressed amid fears the COVID-19 epidemic will gut retail, office and multifamily property values as more people shop and work from home, the return to normal is unlikely to mimic the long recovery of the 2008 Great Recession.

However, the economic rebound could be either V-shaped or more protracted, depending on a number of underlying factors such as the development of effective drugs and vaccines. The ability to test quickly and quarantine in the event of any resurgence will also have an impact on economic recovery. In comparison, the recoveries following the 2003 SARS pandemic, 9/11 and the 2008 financial crisis took six months, one-and-a-half years and two years, respectively. 

Federal, state and local government intervention will be vital to regaining economic activity in those areas of the country most heavily impacted. This includes financial, food and health-care relief, plus mandating forbearances on rent and mortgage payments along with moratoriums on eviction. Given the concentration of cases in cities, there could be an exodus of residents to adjoining suburbs. 

Below are some related considerations for the office and residential markets.

Reconfiguring the Office Environment

Offices will likely need to be reconfigured to accommodate more social distancing, reversing the recent trend of open, collaborative spaces with interior offices based on seniority or position. This change is expected to negatively affect the use of co-working or hoteling companies such as WeWork, Convene, Knotel, The Wing and other competitors.

Companies may limit desk sharing, alter the way air is cycled and create stations where employees can sanitize upon entering the office. They may have more employees working remotely, stagger work shifts and rely more heavily on digital collaboration. 

Businesses may also reconsider or reduce their need for physical office space, but this depends in part on future job growth. Medical office space use is likely to remain stable regardless, as noted in a recent report from Green Street Advisors.

On the market side, building owners may need to enhance air-quality standards, which in turn can offer a competitive advantage. Other changes may include antimicrobial surfaces and technology that scans for sick workers, with a greater overall focus on tenant health and wellness.

Residential Real Estate in Flux

While it is too soon to track a rise in exurban housing demand related to the coronavirus, some brokers believe there will be a shift by residents from cities to suburban locales with more space. However, others, including many developers, believe U.S. city dwellers will not likely abandon urban centers for outlying suburbs en masse. In addition, the related job losses from COVID-19 are expected to decrease rents along with stricter home buying standards from lenders, as city housing stock tends more towards rental than ownership. 

A renewed focus on public health is probable, with public spaces being configured with temperature measuring sensors and other technology to track the health of people. Future urban design is likely to reflect greater separation between people in both professional and social contexts.

New York City has experienced soaring housing and living costs and was losing population before the pandemic, which has heightened concerns for future pandemics and whether to remain there. However, while suburbs are less dense than cities with reduced contact, they have fewer hospitals and resources for treatment.  Although denser than New York, Singapore and Hong Kong were able to contain the pandemic more effectively. Nevertheless, among those previously planning to relocate, COVID-19 may be the impetus to make the change sooner.

While multifamily construction is continuing where it is not being prohibited, newly built luxury projects will take longer to fill. For projects in planning, developers are reconsidering layouts to accommodate tenants working from home.  Future high-rise buildings will have more touchless technology, including remote access for locks and thermostats. 

Markets will vary as to how well owners can absorb losses, with lower income tenants less able and slower to recover. Owners will likely have to absorb more maintenance costs due to enhanced cleaning and increased wear-and-tear of residents working from or staying home. At lower income strata, household creation may slow from those moving back with families, or seeking roommates based on financial need. However, the global pandemic is not expected to push renters toward single-family housing, due largely to the still significant rent-versus-own payment gap. 

The stark reduction in travel has had an impact on short-term rental platforms such as Airbnb, Sonder and others, which could result in conversion of these units to more standard long-term rentals, thereby reducing rents, and positively affecting housing affordability.

Finally, the coronavirus impact is expected to lower conventional multifamily apartment rents, which will increase co-living vacancy near term. Longer term, co-living is forecast to benefit from the housing shortage as the economy recovers. However, operators may need to implement more frequent and extensive cleaning practices.

Regardless of whether the economic recovery is relatively quick or more protracted, it is clear that COVID-19 will have a lasting impact on where and how people work and live going forward.


David Stern is the founder & president of >Townhouse Partners, a leading due diligence firm serving the nation’s commercial real estate industry. With a strong focus on value-added and innovative data-driven solutions, Townhouse enables lenders and investors to make successful investment decisions with confidence.