Covid-19 has had immediate and substantial impact on the greater Seattle region. Economically, the quarantine and social distancing have created the greatest impact of all. While Governor Inslee ordered a shelter in place in late March through early May, many companies and individuals have been self quarantining and social distancing since early March. This has most harshly affected retail, hospitality and travel industries within the region.
The outcome of the regions shutdown will not fully be understood until the pandemic is fully controlled by a cure, vaccine and substantial testing and technology offerings that allow tracking. This has created a difficult scenario for the regions industries as they consider the following:
How long we’ll have to endure shelter in place and social distancing.
The speed at which we reopen our cities.
Will there be further interruptions and the cause for additional quarantine in the next 12-18 months?
How and where will government assistance and/or bailout deliver?
Even with government bailout, our retail professionals believe the state of retail as a whole will be forever impacted. This particular industry traditionally runs on incredibly low margins and even with government assistance, may not have the necessary funding to get back up and running. E-Commerce on the other hand will see a push as traditional brick and mortar retailers who have been forced to move their sales online to survive, may never go back. This should have a positive impact on our industrial sector.
Other industries that should navigate this storm well are telecommunications and healthcare. Remote working has now proven to be effective, although frustrating at times. We strongly believe telecommuting will never fully be able to replace human interaction. Companies that can improve remote working function will do well. Healthcare will see demand regardless of market. Elective surgeries, cosmetic for example, will likely slow until we see confidence in the economy again. Elective surgeries inclusion in Seattle’s first wave of essential work was positive for this sector.
As we analyze the greater Seattle region, we are confident the economic impacts will be mild compared to other parts of the country or world. We saw this through the Great Recession as well. Our city’s driving force is Amazon who may come out of this better than any other company in the world. The same can be said for Microsoft, Oracle and other cloud or technology based organizations. Boeing will struggle as they do in every great recession and their comeback will be largely dictated by further government assistance and the speed at which consumers feel confident in travel. The same can be said for hospitality.
Our near-term expectations are that companies plan to work remotely beyond the May 4 shelter in place expiration date and will not fully be back and operational for months. Even then, reentry to the work place will likely be phased and social distancing will be incorporated until the pandemic is over.
The change to the real estate market will depend on a few factors. For instance, we expect retail to see substantial vacancy and declining rates as government protections are lifted on default and eviction. Landlords are making every effort to assist retailers through this time as near term relief is substantially more profitable then vacancy. Even this near term relief will likely not be enough for many retailers to survive. The office sector will see near term concessions such as free rent and improvement allowances as Landlords look to protect their face rates and shore up occupancy. If large amounts of sublease space flood our market or companies that are at risk (think Co-Working) default, the office market will decline. This will likely take some time. In 2001, it took 30 months to reach the bottom of the office market from the peak.
Thank you,
Charlie
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