COVID-19 has caused massive ripples and outright holes in the economic tapestry of America.
It has decimated the travel and hospitality industries. More than 100,000 restaurants have closed, most permanently. Thousands of retail stores have closed, and many of America’s brand-name retailers have filed for bankruptcy.
But there’s another industry still reeling from the pandemic’s impact. It’s one that generates over $1 trillion per year in total revenues: commercial office space.
Millions of office workers shifted to work-from-home status back in March or April. According to The New York Times, as many as 60% of those workers are still working from home – either wholly or in part.
And several companies, including Amazon, Facebook, Salesforce, and Tesla have announced that many of those office, administrative, marketing, and clerical roles will remain in work-from-home status well into next year.
Some companies had started to send staff back to offices. But companies as diverse as JPMorgan Chase and John Deere ended up moving back to mostly work-from-home setups as some office workers contracted the virus.
Waveform estimates more than 80 million American workers began working from home in April. Tens of millions remain in that state.
Recently, this trend has started to show a major impact on the commercial office sector. Los Angeles, Chicago, and New York City are all seeing record-high vacancies in commercial offices. Even cities as far-flung as Nashville, Tennessee, have started to see price-per-square-foot slip compared to the same period last year.
The industry anticipated that as the spread of COVID-19 came under control, workers would shift back to in-office activities. But with recent COVID-19 infection rates increasing and the onset of the winter flu season, those plans are now at risk.
The nation’s largest commercial office broker, CBRE, issued a report estimating the commercial office real estate market may not return to normal demand until after there is a widely adopted vaccine. That may not be until sometime in 2021.
As an investor, you may wish to see if your portfolio has any exposure to commercial office companies or brokers, as the demand recovery may take longer than expected. And be sure to look at the makeup of mutual funds or ETFs. Many of these may own such stocks as well. Especially those that pay a dividend.
Commercial office space is roughly 3% of U.S. GDP. So if there’s a major slowdown in that space, it also has major implications for how quickly the U.S. can show real GDP growth as part of the COVID-19 recovery.