Coronavirus portends a less dense world, Sam Chandan says

Schack Institute dean sees risks for cities, co-working, hotels and more

The coronavirus pandemic is causing the future of real estate to arrive ahead of schedule, according to Sam Chandan, dean of NYU’s Schack Institute of Real Estate.

Greater space between office workers. More working from home. Less business travel and fewer hotel rooms. And, most worrisome for places like New York City, perhaps a shift away from dense urban centers.

“We’re in the middle of this unexpected and very abrupt and very forced adoption of a lot of these technologies,” he said. “And I think on the other side of it, folks will say, ‘You know what? I had been skeptical of remote work, but maybe there’s room for it in the way that I think about how my organization functions.’”

Chandan’s comments came in a discussion Wednesday with The Real Deal’s publisher, Amir Korangy, on the webinar series TRD Talks Live. The pair discussed aspects of the crisis ranging from inflation to coworking to online grocery shopping.

One effect Chandan said he expects the pandemic to have is a desire for lower density. Although he cited co-working and micro-apartments as parts of the real estate industry that could be especially threatened by this, he stressed that it would likely touch almost every aspect of the economy.

“It may be that certain people go in Monday, certain people go in Tuesday, and we de-densify,” he said. “That does affect the viability of some of the co-working spaces in the market today.
It does imply lower rents. It implies a smaller number of leases.”

The Manhattan-based economist noted, “If density is out of favor, that presents a major challenge [to urban centers].”

Airlines and restaurants may be forced to reduce seating capacity, which could render some routes and eateries uneconomical.

“There are some restaurants, there are some flights that simply are not going to be viable under those scenarios,” Chandan said.

The hotel industry, which has been decimated by the pandemic as travel has shriveled, also faces lasting challenges, Chandan said. Companies might decide that flying employees to meetings does not make as much sense as holding them virtually.

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“That next time that someone suggests, ‘Let’s meet,’ I think there’s going to be, first, a real question about, ‘Does it make sense to have this meeting? Perhaps we could have it over Zoom, or do I really need to fly to San Francisco?’” he said.

“At least on the margin, we’re going to have some more meetings over Zoom, and that is going to impact the amount of business travel. It’s going to impact business occupancy at hotels around the world.”

One sector of real estate that Chandan predicted would survive and perhaps even thrive was industrial real estate. The sector was already booming prior to the rapid spread of coronavirus, and although brokers said it has since quieted down, they are still seeing solid demand for properties.

Chandan said the rise of online grocery shopping during the pandemic could be a major boon to warehouse properties, as companies will need space to store the foods people have grown more comfortable ordering.

“Many of the things that have seen sustained and gradual improvements over the course of this cycle are well positioned,” he said. “A lot of that industrial space is going to be a beneficiary.”

Market sentiment is also positive for multifamily buildings, he noted, but not for senior housing, regional malls, office space and hotels.

Chandan said the next monthly jobs report, due out May 8, could be the worst ever in terms of positions lost. “We have every reason to believe it will be the most significant deterioration of the U.S. labor market in any period for which we have records,” he said.

He noted that the economy’s steep decline has largely been self-imposed. However, Chandan expressed skepticism over whether the country would see a “V-shaped” economic recovery once officials relaxed restrictions on activities.

“The recovery coming out of this will be one that takes a little bit longer than the very abrupt deterioration we saw,” he said. “This is not a recovery where at the end of 2020 we find ourselves where we were in February.”

Chandan ended the interview on a positive note, describing himself as an optimist and noting that the real estate industry and the country as a whole are both extremely resilient.

“We are capable of putting ourselves back to work,” he said, “and while this particular set of circumstances means that it will take time and that there will be real differences in outcomes, I’m hopeful for what our next conversation will be like.”