When the government shuts things down, it clobbers the small guys, when the Wal-Marts get to stay open!

Who are the winners and losers at this point of the COVID-19 Pandemic? What are the forces pushing the scales? Is this a long-term trend, and will the winners and losers stay the same as we continue forward?  

2020 will be remembered for a country-wide government lockdown to “flatten the curve,” in order to alleviate the strains on medical services. The ripple effect in the economy, however, will be known as the “K-Curve“.

.

This graph from the U.S Chamber of Commerce best displays what economists mean by a K-Curve.  Certain industries like technology, online commerce, and software services saw a growth in 2020, while travel, entertainment, hospitality, and food services have seen a continued decline as the year progressed. When federal, state and local governments have such an influential role in what people are allowed to do and what businesses are essential, this will cause a huge gap in who will have a job and who will have to close.

Based on the initial six months of the pandemic, the three biggest losers, from our perspective, appear to be restaurants, retail, and office space. Let’s address the latter first.

RESTAURANTS

Most restaurants were indeed thriving in a booming economy prior to the pandemic. It took a period of time, but at least in our area, many recovered (or held on) based on their ability to shift to the takeout model and then the outside dining as things began to open. There will be the question, though, as to what happens as we move into the winter months and the temperatures begin to decline. There have been substantial casualties in other states, but less so here in New Hampshire. Certainly the PPP and similar programs sustained restaurants for the worst of it in the beginning, but what happens as the numbers begin to climb and outdoor dining is not an option? If, as in MA and NY, the hours are limited and the number of patrons are limited, where is the breaking point?  

RETAIL

When it comes to the retail sector, in our opinion, the pandemic exacerbated and indeed hurried the inevitable shift from brick & mortar to the online sales. What might have taken four or five more years, happened in less than four months. The absolute power now held by the Amazons of the world has been solidified, and is likely permanent. The brick & mortar is suffering everywhere you look. Empty storefronts and malls that appear deserted are commonplace, but it seems to run even deeper than that. Rents are being abated, reduced or in some cases, forgiven for periods of time. What effect does this have on the building owners bottom line? Are they still in conformance with their loan documents? If the tenant can’t pay, and there are no other tenants to replace them at the same, or even close to the same rents, does the NOI drop to a point where they are no longer in conformance with the load terms they started with? This could put things on a slippery slope. 

OFFICE

Then, there is the office market. Once everyone began to feel comfortable with the stay-at-home work model, there has been a flood of both smaller and larger tenants deciding to stay with it, and reduce their overhead by breaking the lease, or “buying out”  for some of the lucky landlords. Conversations with some commercial movers have them hiring three to five extra workers to be able to handle the number of closed offices moving furniture out and putting it in storage. Will this trend continue? Has enough of the workforce become comfortable and efficient enough to be able to work from home indefinitely? Again, loan terms start to play into the landlords’ decision matrix when they cannot fill the empty office space. How long can they afford to carry the property? Does the situation of work-from-home become permanent? What does the future look like from both sides? Will employers become used to lower overhead and the same or sometimes more efficient productivity? Will the sociological norms change with the ebb and flow of the pandemic? Will employees grow weary of working from home and long to get back to a social space of working together? 

TECHNOLOGY

We’ve seen an increase in software and technology as more people are not just doing some work tasks online, but having all meetings, presentations, data entry, and organization online. This has created greater demand for data farms and other infrastructure necessary to this shifting economy.  Technology companies are a group that is sweeping up land and industrial space at record rates. This quick shift in how some of the basics of the U.S. economy work means different types of properties are immediately needed to keep up with the demand. This sector, along with online retail, has created a huge demand influx for industrial/warehouse space. It is also believed by many large organizations that manufacturing is likely to move back to the states to help protect certain industries from being held hostage in emergency situations, which will likely continue to occur in this new global economy.

MULTIFAMILY

Another sector that has remained strong as a whole across the country, but in certain markets has been devastated, is multi-family housing. With so many people moving due to no longer being tied down to an employment location, many individuals with means have left cities or locations that have been hardest hit by COVID to more desirable areas such as New Hampshire and Maine. This move to areas where there are not nearly enough housing units available has led to even greater demand on rentals and caused an increase in rent expenses. Our team at KW Commercial deals with many of these landlords and investors and we have seen new units going to the market for 23% higher than similar style apartments and getting rented at record speed. With the flexibility of being able to move and keep employment, as well as being saddled with more student debt than any generation before, we will likely see millennials rent for even longer.

2020 has seen so many small businesses go under and so many people in affected industries lose their jobs. With many types of employment not coming back and shutdowns that lost countless trillions of dollars to the GDP, this pandemic will have ripples in the economy for years to come.  And as you can see from this article that it was not all losers in the U.S and global economy. The winners are very few and their gains are disproportionate to the commutative loss by so many. 

While we are not fortune tellers and don’t know how travel, medical, and tech industries will be affected, we can give a few suggestions to the reader. Financial troubles can fall on each and every one of us outside of our control. Knowing your personal financial situation and being prepared for a rainy day is more important than ever. Also having AND building skills that can adapt to changing market conditions is now most important because a career that spans an individual’s entire life is less likely than at any point in history. There will always be winners and losers in a capitalist economy, but your ability to survive and thrive is based on the skills and connections you have. Be sure to stay connected to the right experts and continue to learn.

– Dave Garvey & Ethan Ash