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Investment Currents: COVID’s Impact on Real Estate

By: Tim Chubb, Chief Investment Officer at Girard, a Univest Wealth Division

As the globe continues to grapple with the COVID-19 pandemic, we have seen our lives change in ways we never imagined. People can no longer meet, work, eat, shop and socialize as they used to. The working world has moved rapidly from business-as-usual to office closures and work-from-home mandates. Businesses are experiencing years’ worth of transformation in a matter of months and it could have significant implications for commercial office space and potentially impact residential real estate as well.

In the past, some companies allowed office-based employees to occasionally work from home, but most people went to the office. This was certainly the case for our firm and our corporate culture today would not exist without this opportunity. Recently, even before the pandemic, urbanization has increased and mixed-use real estate projects emphasizing live-work-play have become popular. While companies have made sizable investments in office amenities to attract and retain workers, cloud technology investments have created an environment where employees are able to work from anywhere. With the pandemic resulting in an unanticipated three-month (and counting...) experiment in working from home, many have speculated that working remotely could become the new normal for some companies. What was expected to be a short-term shift to remote working could have lasting ramifications on office buildings and the broader real estate industry.

In the last quarter, many companies across industries have noted the surprisingly smooth transition to working remotely. Large, diverse companies have said they envision needing less office space while allowing employees to work from home in the future. Chief Executive Officer of Facebook, Mark Zuckerberg, said the company plans to, “aggressively open up remote hiring.” On the other hand, Microsoft’s Satya Nadella recently shared that, “maybe we are burning some of the social capital we built up in this phase where we are all working remote. What's the measure for that?"

Currently, Girard and Univest Financial continue to encourage working remotely. Capacity for each office has been considered and the number of employees in a location is limited to accommodate social distancing and ensure meeting spaces and common areas are safely utilized. As a result of the lasting effects of COVID-19, large companies may decide to lease the same amount of space, but with fewer employees occupying the existing footprint or they may opt to utilize co-working spaces for the occasional client meeting or gathering of remote employees. Depending on the business model, smaller companies may contemplate whether they need to continue leasing any office space at all or at least consider if they can opt for less square footage. 

As people return to offices, albeit in smaller numbers, landlords and real estate investment trusts (REITs) will likely need to adjust by making updates to buildings. Contactless doors, elevators, sensor-filled restrooms will be the new normal and social distancing will be encouraged in lobbies and elevators. When these changes are implemented, it will increase the appeal of updated buildings, but will likely hurt older, more obsolete assets. With all that said, from a financial standpoint, office space does not tend to be a major expense relative to the cost of employee salaries and benefits. It is likely medium and larger employers will maintain the same space, but with fewer employees.

Some have speculated that a decline in leased office space could mirror the decline in brick and mortar retail and lead to many large, empty buildings. Fortunately, unlike retail space, commercial real estate can be more easily repurposed. This could lead to several expensive, difficult years for commercial office space, however, it beats the alternative. We could see some operators opt to redesign office space into apartments given the existing elevators, accommodating floor plans, HVAC, and internet connectivity. While I feel like I see a new high- rise apartment building in suburban Philadelphia every day, the reality is, affordable housing has been very constrained. This is especially true along the densely populated east and west coasts where the price of homes and rent have skyrocketed. A fresh supply would be welcomed and supportive of the recent housing choices millennials and baby boomers have been making.

Alternatively, Americans could choose to avoid very dense cities reliant on public transportation thanks to their newfound work-from-home freedom and move to suburban areas with more space, less density and the opportunity to live in homes with ample square footage that allows for separating work life and home life. However, working from home brings new challenges such as stress on organic collaboration and the question of when work ends and personal life begins. Done right, remote working can boost productivity; done wrong it can damage corporate culture and demotivate employees. 

At the same time, just as baby boomer demand for independent and assisted living begins to grow, fears of future viral outbreaks may prompt them to stay in their current homes longer. It is possible that demand for senior living accommodations could dampen and buildings will need to be renovated to meet new preferences for more physical space. It is also possible that senior-living facilities could prove they are best able to handle viral outbreaks, accelerating demand. 

It is important to recognize that rare events like a global pandemic are likely to have lasting consequences for a variety of industries and assets, like real estate. While things remain uncertain, we will be closely following new trends as they emerge. Physical distancing will change the way people inhabit and interact with physical space and will require many real estate assets to change or potentially reinvent themselves. This has created an unprecedented opportunity for the real estate industry beyond the immediate challenge. The longer this crisis continues, the more likely we are to see transformative and lasting shifts with the way we invest and interact with this asset class.

Given the ongoing changes due to the global pandemic and the significant investment implications, working with a financial advisor can help you navigate the markets and create an investment strategy that matches your time horizon and risk tolerance. To have a conversation about your financial goals and how we can help, please reach out to a Girard advisor.


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This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. The information in this article, and any opinions expressed therein, do not constitute a recommendation or an offer to buy or sell any security or financial instrument. Viewers should consult with their financial and/or legal professionals before making any financial decisions.