The world after the crisis
Updated: May 20, 2020
One fine evening, I decided to go outside and catch some air and buy bread. As I was ready to head home, the skies opened up and it began to downpour. While waiting inside a mall for the rain to ease up, I began noticing how the open food business had changed their operating model. Instead of having seating for patrons, malls had started taking orders from mobile apps and having food delivery services pick them up.
That made me think, what will the situation be like after this crisis is over? Will life go back to normal? Or will it change forever? How will businesses change? A lot of questions popped into my mind. Here are some of my ideas and visions of what the world might look like after this crisis is over.
As I have learned, every crisis that we have gone through, chain of change and innovation arise.
Here are the things that may change:
Work from home will become integral part of work.
Commercial office demand may slow down.
Retail space demand may drastically shrink.
Residential may become a tenant's market.
More demand for warehouse and distribution centers.
Work from home will become integral part of work
The stigma of work from home has been erased due to the COVID-19 pandemic. It has forced companies to adapt quickly. And somehow, it seems to work and people seem to adjust to it.
Throughout the Philippines, implementing work from home was a challenge due to the internet speed and the fact that not everyone has a broadband plan at home. But I believe this experience will fast track the long overdue overhaul of the telecommunication system in the country. We may see internet become faster and cheaper since the government has realized its value. And furthermore, to really support the Balik-Probinsya program, this must be a key issue to be addressed.
Now, how does this impact real estate? In developed countries, not enough office space has always been a problem. Work from home arrangements can solve that. This means companies may no longer need large office spaces to house their staff which may drive down demand. Having said that, it may also lead to a more spacious and innovative use of office space.
One of the good things that this crisis has brought to us is that we have learned to embrace new technology around us. It is quite amazing that you now see even the older folks using digital wallets and mobile banking.
It is nice to see a bank in the Philippines that offers a new way of allowing the unbanked to open an account in a fast and hassle-free way. I hope the other banks will follow. It is really such a pain to open an account and use the online banking system in large banks, especially those that require you to go to an ATM machine just to enroll in mobile banking and a third-party account.
On the downside, we realized what is lacking in the Philippines - the IT infrastructure. I'm glad that the D.O.T.C. has acknowledged this problem and promises to work on improving it. And that is a good indication of what we can expect in the future - faster and cheaper internet and digitalization nationwide. I believe this is very crucial to supporting the growth of the country and for the National ID system to have effective implementation.
Those who are in e-payment and digital money will see spikes in sign-up and usage. Digital banking will also become widely accepted in the future, which is an opportunity to provide the unbanked to be financially included.
Commercial office demand may slow down
In the past weeks, I've attended a number of webinars by property consultants and they sing the same tune – there may be slower or no demand and softer prices. And all also agree that the Real Estate market will still be resilient and will recover as soon as the crisis subsides given the easing of monetary policies in the Philippines. And we believe that will be the case.
However, we should also consider what is contributing a significant demand to the commercial real estate - that is BPO's and POGOs.
Assuming most of the BPO are able to keep their business, that will be good news, but some of those companies might be thinking of having alternate sites which can reduce demand. But hopefully, the urbanization of provinces can entice them to split their site in the province rather than relocating to another country. Another factor they might have to consider is the IT infrastructure. Some companies have struggled with work from home arrangements because of internet speed issues.
But I believe the down side will be just temporary. They can all be addressed and the country is still in a good position to attract investors and businesses. Build. Build. Building projects will still be one main accelerator for growth.
Retail space demand may drastically shrink
A concern that I have is how things will change for retail. This crisis has proven that basic necessities will always thrive no matter the season. And online shopping has seen its best days. So, I wander how the brick and mortar retailers will look like post-crisis? It is quite hard to tell as it depends on human behavior. If a vaccine is available in the next 18 months, a lot of retail business will have to shift thier business to online if they want to survive.
There might be opportunities for retail space to reinvent to attract people. Maybe having more events and activities will help? That is once the risk of the virus has been eliminated. It may take longer for retail spaces to recover, but they eventually will given that the very nature of human being is to socialize.
Residential may become a tenant's market
This crisis has put residential units into a difficult situation. While the lock down was in effect, there are units that have become vacant. Chinese that flew to China for Chinese New Year found themselves stuck. Even locally, some found themselves unable to return to Manila.
With no leasing activities allowed and evictions legally possible, the effect is that there will be a surge of available units to market. It is going to be a tight competition later on. And with more supply than demand, it is going to be a tenant's market. This means the market will be favorable for tenants.
Those with existing tenants that are about to expire, we advise keeping their rates in order to avoid vacancy. If you are a tenant, negotiate down the rate, but try to remain flexible. It will be better to lower the rate rather than have your unit join the competition.
A good strategy is to maintain a good relationship with your tenant in order to keep them. If you are able to give them some freebies, do so. You're not only avoiding vacancy, but you are also helping the market as a whole. The fewer vacant units will make the rate not to go down. Besides giving a one month’s free rent, wont hurt as bad as being vacant!
More demand for warehouse and distribution centers
With the growth of online shopping, demand for warehouse and distribution centers will increase alongside the logistics business.
In Singapore, I've seen how GrabFood, FoodPanda, Lazada, and other online shopping and delivery apps have become popular. Everyday, I can see from my window delivery trucks parked by our block every hour and delivery guys on bikes almost always rule the roads.
Though it might not be the same after the crisis, it does give a sign that online shopping will become more popular. The need warehouse to strategically house their goods. The need for shorter delivery time will increase so demand for this type of real estate may increase. Opportunities will be higher in urban areas. Look out for this kind of opportunities in your home province.
Again, these are just our perspectives based on the information we have. It may happen or may not happen. It all depends on how soon the unknown factors will become clear. But the key message we want to impart is that changes will definitely happen and we have to be adaptable and flexible to stay ahead. Acknowledge that some things may look bad. But always look for the opportunities. The coin has three sides, be at the side where you can see both the bad and the good. It's the side where you can have an informed decision.