By James Doerfel
Designated Broker
In March I was named to a team of NWMLS members selected to study the impact of pandemic on the local Real Estate economy. It's not easy to discern trends when you have limited data. For several months we plotted data points until patterns started to emerge.
There was no denying that behaviors were shifting. Some were spontaneous; others by dictate. The causes were not always clear. We need not get sidetracked by the intricate stories people offer after the fact to make meaning of their lives. Most of them have little basis in fact, and the ones that do at best make sense of only part of the story. What was clear is that whole sectors of the economy which rely on masses of people getting together indoors had been hit hard--restaurants, nightclubs, museums, event venues, airlines & cruise lines, resorts, houses of worship--and all of the providers who rely on them. Stay at home orders and the natural aversion to non-essential human interaction conspired to reduce commerce in industries as disparate as nurseries and massage therapists. Governments the world over intervened to protect their citizens against fallout from the worldwide plague. What would America's governments do? We saw historic spikes in job loss--one of key performance indicators on which we queue in normal markets. But this was turning out to be no normal market. The question we all worked to answer was how the effects would ripple.
In the first weeks, the uncertainty in the air was palpable. A flood of contracts canceled. New listings slowed to a trickle. The state declared open houses no longer safe and imposed strict restrictions for showings and person-to-person interaction. New construction was halted and the jurisdictions which review and greenlight construction projects stopped taking meetings. In those early days many of us wondered if the pandemic was the turning point that would send the housing market into freefall. As weeks turned to months, a few early trends became evident. Flight from higher density to lower density, from cities to suburbs and more rural housing. Sharing space on trains and elevators, offices and gyms, felt risky in a way they had never before. For complicated health and social reasons, dining, dancing, shows and shrines were no longer safe options. Adding to it all, more and more companies all at once authorized work from home and began investing billions in WFH infrastructure. Emergency action from the Federal Reserve led to record low interest rates which meant that the dollars of people who kept their jobs went further than ever before. Spending that had once been consumed on dining, dancing, shows and shrines got redirected to technology, spirits, and with people spending more time at home than ever before, housing. Demand for suburban housing at all price points spiked over the summer and has remained as hot as ever ever since.
While demand for residential space surged, demand for commercial space slumped across the board. Sales of large commercial spaces are far rarer, so fewer data points exist and so our samples are less representative. Much of this data is reflected in rents. Lease renewals are a lagging indicator, and financial lifelines such as low-or-no-interest small business loans, forbearance agreements and eviction moratoria, occlude the real-time carnage of the pandemic in many sectors. The summer's surge of protests against the historic abuses of law enforcement, real and perceived, led to further handicapping of law enforcement and the resulting surge of destruction and lawlessness has further adversely impacted local businesses, with many shuttering or opting to move to more business-friendly jurisdictions. Many commercial uses will take years to come back. Others may never return. Seattle has faced calamity before and come out stronger, and what applies to Seattle applies to our urban hubs. It takes will and resolve, investment and sweat of our communities. In the PNW the most pressing issue of the post-COVID era is the revitalization of our downtown cores and business districts.
With change comes opportunity. The greater the change the greater the opportunity. While many sectors of our economy have sustained back-breaking losses, others have surged. Investors who want a predictable bet consider 1031-exchange residential holdings to commercial real estate in urban areas with robust infrastructure commitments (Private and Public). In the past year Amazon, Google, Facebook, and Microsoft have increased their real estate acquisitions initiatives, spending hundreds of billions scooping up prime commercial real estate, much of it on Seattle's Eastside. If you live and own real estate in these areas, their capital improvements in a community (and the jobs that result) are your gains. I've been coaching investors for decades to learn how to follow smart money. In times like these, never has it been more poignant advice.
2020 changed our world. We will not understand precisely how until we've had some time to examine the fallout from a critical distance. 2020 was a year of unprecedented uncertainty--a once-in-100-year plague, a once-in-250-year authoritarian, radicalization of the right and left wings of our increasingly technology-mediated civilization made up of essential workers, work-from-homers, and the many who lost loved ones and livelihoods in the fray. 2020 changed how we shop, how we buy, how we interact with technology, how we draw our spheres of solidarity, and how we work and play, live and learn in constructed architectural space. 2020 saw a surge of virtual alternatives, from virtual school to virtual real estate, and shined a light on limits of virtual reality. Physical bodies need physical spaces to do what bodies do--eat, sleep, shit, fuck--spaces in which to live and love, to gather and bond, to eat and drink, to work and play, to grow and learn, to exchange ideas and conduct business. This is the foundational reality that underpins and drives real estate. How we connect with those spaces evolves in an ever-changing environment, and 2020 threw us changes without parallel in living memory. Which of those changes will prove temporary state of affairs? And which will prove permanent? 2021 will answer many of those questions.
A real estate professional for the 21st Century, James uses data science & intention modeling to develop the human connections that move us, the professional techniques that inspire trust, and the property intel that transforms the spaces we inhabit.
James Doerfel | Designated Broker
(425) 221-5111
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