How much can we take?
That’s the pivotal question as we face the hard crash of a pandemic second wave, the added complications of the regular cold and flu season, and a snowy time of year already known for contributing to mental health issues.
This may seem a little off topic for a column about the business of commercial real estate, but regular readers, I would hope, understand by now the method to my madness.
How we work and live, and anything that might influence that, ultimately does impact the real estate market. Everything we do, flying aside, takes place in real estate.
On the one hand, we have the latest research from the Canadian Federation of Independent Business, which finds that barely 30 per cent of its membership returned to a regular volume of sales in the June-to-September period.
At the current pace of activity, it will take many small businesses upwards of 17 months to return to normal, on average. This estimation assumes a second wave doesn’t force us a few steps back.
We must also consider what faces those businesses dependent on sunny, warm weather – such as bars and restaurants with patios.
For business owners affected by a decline in revenue, and their employees, this obviously means a lot of stress. There is only so much stress any of us can take before it begins to have a toxic effect.
As we heard in the Liberal Throne Speech, relief programs for business will likely continue to play an important role, but these can only do so much.
Mental health is no small issue
That brings us to a study pending from the Royal Ottawa Mental Health Centre, reported Sept. 22 by the Ottawa Citizen. It finds that rates of anxiety and depression have soared since the beginning of the pandemic . . . including among those of us who were not already suffering from mental health challenges before.
“Even in the ‘Average Joe,’ if you want to call them that, the pandemic has taken a really serious toll,” Rébecca Robillard, director of clinical sleep research at The Royal and author of the study, told the Citizen.
“Even for those without pre-existing mental disorders, half of them had major signs of depression and a third had signs of anxiety disorder.”
Compounding all this of course are the challenges which parents face with schooling their children, and the disruptive impact of the odd sniffle. Local health units and provincial governments must tread that fine line between protecting public health and curbing the spread, without imposing measures that are unnecessarily draconian.
Already in Ontario, and the Ottawa area in particular, we saw this in September, as the nightmare of long lineups and missed work and school impacted thousands of families. This only promises to get worse as we progress through cold and flu season.
We had some workplaces and schools requiring a negative test for a whole household if one kid came down with a sniffle, while the head of Ottawa Public Health said this isn’t an actual requirement of the health unit.
The whole affair emphasizes how we all need clarity and consistency around what we have to do and when.
The real question is what impact all this will have on how people choose to live their lives over the next six months.
Are we going to see a noticeable dip, for example, in the birth rate six or nine months from now, as people in the present defer their plans to start a family? We saw that kind of thing happen before, over several years of the Great Depression.
Such a drop could leave us with a doughnut hole blip in our population demographics data for the next 90 years.
It would impact, in the near term, baby-oriented retail, kindergarten enrolment levels four and five years from now (which impacts schoolboard planning) and even homebuying patterns.
Don’t come home empty-handed
Many of us have also become hunter-gatherers. When we shop, we are on a mission with a specific goal in mind. Casual browsing only happens now online.
I experienced this myself recently when we went to purchase a stationary bicycle. Our local Fitness Depot had for sale 40 second-hand commercial-grade bikes that it had acquired from the bankruptcy of a gym in Montreal.
These things were going like hotcakes.
With social distancing measures in place, we had to line up outside the door of the store where a clerk worked the line to ask people what they were there to buy. The whole thing was set up quite well to help you get what you wanted and get out the door as safely and as efficiently as possible.
We had the bike delivered and set up in our home by 4 p.m. that afternoon.
Businesses that help people weather winter should do well
This story has two key takeaways.
First, businesses like gyms and fitness studios are obviously among those types of services that are struggling right now.
Second, it’s a good time to be providing goods and services that will help people survive a home-bound winter in reasonably good health (that’s why we were buying that bike). This very much extends to any kind of service that would support anyone living in isolation, and at greater risk of mental health issues as a result.
While many people are struggling with job loss and reduced income, many others are not. There is still money out there being spent.
It’s up to a business to lever social media and online marketing to make itself known and drive cash flow.
But what about commercial real estate?
This remains the million-dollar question. How “short” will a short-term drop in demand for commercial office space truly prove to be?
We have the high-profile case of Shopify, an e-commerce company that is absolutely booming during the pandemic. And yet, the shift to remote work has it vacating and sub-letting a prime downtown HQ it moved into just six years ago.
That lease doesn’t come due until 2026. I don’t expect Shopify would stop paying its lease, but I don’t see anything to indicate that other companies are lining up to take that space, either. It’s an odd sort of limbo we couldn’t have predicted a year ago.
The shift to remote work is already proving to be a tough pill to swallow from a mental health and productivity perspective for many people.
A friend who is an electrical engineer has been working from home since March – while the work is getting done, he has found that creativity in terms of new product ideas has almost ground to a stop. Winter certainly won’t help.
This winter will be tough
Somewhere on the other side of this, historians will decide which governments around the world got their nation’s pandemic response right or horribly wrong, while politicians will try to spin either narrative to their advantage.
However, that doesn’t do much for us in the present as the days grow shorter and colder. All we can do is look out for one another, wash our hands, and wear that damned mask.
To discuss this or any valuation topic in the context of your property, please contact me at [email protected]. I am always interested in your feedback and suggestions for future articles.