How the pandemic will affect Triangle real estate

Lee Roberts for Triangle Business Journal

With so much uncertainty in the world, some might assume that predictions are of limited use to the real estate sector. But even if none of us have lived through anything like this pandemic before, we can make informed guesses. Previous downturns are instructive, as is a close look at the impact the crisis is already having on certain types of real estate.

We believe that it is safe to assume that the Triangle and its real estate market will continue to grow, as it did during the aftermath of the global financial crisis. I could even argue that our growth will accelerate, as the crisis becomes the catalyst for people and businesses in the Northeast and Midwest – folks who may have been thinking about moving “someday” – to finally make the leap.

Apartments will remain stable, especially given the Triangle’s continued demographic growth – some of them, anyway. I would not want to be opening a new luxury building on the assumption that rent levels will continue to break records. Buildings aimed at the larger middle-income brackets will be a safer bet, we believe. Even so, the amenity “arms race” will continue, but differently. Perhaps landlords will offer private coworking spaces or bigger units with dedicated work areas, or tout their superior ventilation systems, for instance.

We do not believe that offices are dying. In fact, recent experiences might have made workers appreciate the office now more than ever! But offices will likely evolve. A new flexibility is here to stay, which may lead employers to reassess how much space they need. The big accounting, consulting and advertising firms had already moved away from assigned desks for each employee.

That trend will accelerate, in our view, leading to less need for space in total. The CEO of Morgan Stanley said recently that one thing about the crisis to him is certain: his firm needs “much less real estate.” And while we don’t think coworking is dead either, the densely packed model of WeWork (already in trouble before the crisis) and its peers will change, and their profitability along with it.

Retail is another matter. It was under pressure before thousands of retail tenants were shut down by government order. Aside from groceries and pharmacies, most retailers are suffering. JCPenney was the first large national retailer to file for bankruptcy as a result of the pandemic, and it won’t be the last. One recent report suggested the number of enclosed regional malls in the U.S. might plummet from about 1,200 to a mere 200.

And how many “big-box” stores, already under attack from online commerce, have either been closed or seen their foot traffic dry up? Many will not survive. And the “lifestyle” centers, where teenagers hang out and where we all love to eat and shop, are also being badly hurt, not only by the closures of restaurants, salons and gyms, but because most of their other tenants are independent local businesses that lack the resources of big national chains.

All hotels are struggling right now, but their recovery rates will vary widely. We don’t believe that people will stop staying in hotels by any means, but I’d certainly rather own a Courtyard or a Hampton Inn in a steady location than a big convention hotel or a luxury destination resort.

Warehouse and distribution assets were doing well before the crisis, are doing well now and will thrive in the future, in our view. Supply chains may change, but won’t shrink, and online shopping requires more distribution space in more locations. The large new Amazon facility in Garner is one example.

These are challenging times, but opportunity always exists. The modern real estate investment fund model was born in the early 1990s during the aftermath of the savings and loan crisis. This emergency will shake some real estate sectors out and re-tool others, but in most cases will accelerate trends that were already underway. That is one more reason we are extraordinarily fortunate to be in an area in which people want to live and work. That won’t change any time soon.

Former North Carolina State Budget Director Lee H. Roberts is managing partner of Raleigh-based SharpVue Capital. He can be reached at