10-15 Associates

The Changing Landscape

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As the amount of time that we remain in our “altered state” of reality, one thing has become very clear, the uncertainty of what our daily life will look like has become less certain. Everything from travel, to the workspace, to community gatherings, and shopping, has adapted in a significant way and it is not yet clear what they will look like. RV sales have skyrocketed as families look for an alternative to air travel for their summer vacation, millennials are flocking to the suburbs, and corporate office space that barely has the paint dry on the open concept workspace needs to be remodeled. Shopping malls sit empty with the recently updated “activity spaces” dark and deserted with no practical plan for reopening. Cities and towns across the country try to figure out how to reopen and assure employees that they are safe, as well as create an environment that customers are willing to return to.

The CNBC Global CFO Council Survey, which represents the opinions of some of the largest public and private companies in the world, can give some insight into the changing attitudes of leaders across a wide variety of sectors. When surveyed in March, 30% of CFO’s said it was “too early to know” the impact the pandemic would have on their companies. In the most recent survey conducted from May 14-28th, only one member said it is too early to know, nearly half (48.8%) said the pandemic will have a negative impact on their company in 2020, and 39% said it would have a “very negative” impact. Sixty four percent of those surveyed say their companies have seen a decrease in demand in the U.S. since April 1st, with most of them calling it a “major decrease.”

Over the last several years, major corporations have moved their global headquarters out of the suburbs and into the vibrant downtown areas in major cities like Chicago and Boston. The aim was to attract young city dwellers that wanted to be near an active nightlife and bar scene. For weeks now, companies have been adjusting to entire workforces working remotely. Many of these offices are sitting empty, with Zoom video calls replacing what would typically have been meetings in conference rooms filled with coworkers. As office leasing volume declined by 47% during the first quarter in Manhattan, activity in the suburbs of Connecticut picked up. According to an executive with commercial real estate firm Newmark Knight Frank, companies are looking for ample parking space as opposed to proximity to the train and ground floor locations that can avoid the use of elevators. Outdoor space is also a big selling point. Downtown vacancy rates have increased by 30 basis points, while suburban vacancy rates were up just 10 basis points. In addition to moving out of the cities, companies are looking for smaller space, opting to allow some workers to continue to work from home.

Commercial real estate may be the tip of the iceberg for change in the real estate industry. According to one study, 27% of adults in the U.S. are considering moving homes because on the Covid-19 crisis and 43% of millennials in the same survey are looking to change homes. Areas like Connecticut are getting inquires for year-round rentals rather than just summer rentals. Others are looking at the opportunity to work remotely to make the move from more expensive areas of the country to less expensive more rural areas. Once again, technology is making the transactions possible. Zillow reported that the number of virtual 3D home tours increased by 408% between February and March. The question remains, what it will look like after the virus has been contained. In the aftermath of 9/11, when thousands fled the city and lower Manhattan specifically, the populations not only returned to previous levels, but ultimately grew to new highs.

For many of us, summer vacation during our childhood meant piling into the family station wagon and hitting the open road. After months of being confined to our homes and for many the lack of any outdoor space, the post coronavirus family summer vacation is shaping up very different than recent years. Recreation vehicle dealers throughout the country have had as much as a 170 percent increase in sales for the month of May compared to this time last year. One in four Americans intend to take a trip in a recreational vehicle in the next 12 months and will consider renting or buying, according to a survey by Ipsos. The demand is across all age categories but is being driven by millennials and Gen X-ers, which are estimated to comprise 77% of camper households. According to a spokesperson for the RV Industry Association, the ability for families to continue to enjoy vacations, while adhering to social distancing will likely be around in some form for the foreseeable future.

It is difficult to think about activities that we have done for our whole life the way we did before coronavirus. One way or another, many of us will emerge from this crisis with new ways of doing things, especially when it comes to consumption. “You can’t un-live this experience,” said Emily Miller, VP of Strategy & Insight at Big Red Rooster, who added that while the Great Recession changed our financial habits, the coronavirus will have a far more dramatic effect on a host of behaviors. Just imagine a day of shopping, the number of places you might visit, things you would touch, and people you would have contact with in just a few hours of shopping. Retailers will need to set aside clothes that have been tried on for at least 24 hours before returning to the racks. Maintaining the proper distancing may be easier in outdoor venues than closed shopping malls. Preference for local shops as opposed to big box retailers could make a comeback as consumers will want to know where the items were made or shipped from. Discretionary spending may be slow to return as the focus has turned from what the consumer wants to what the consumer needs, products will need to be relevant. Creativity will be necessary for retailers that do not have an online presence as comfort with buying online has increased during the pandemic. Various studies estimate that it takes several weeks to two months for a new habit to form. It has been nearly three months for New Yorkers living under the stay at home rules, it is likely we have all adopted some new habits that may be long lasting.

This is important for the markets because it shapes the face of a different economy. People will not necessarily stop traveling, but they will travel differently. Workers will return to jobs, but the experience of what they do may be very different. Housing will still be necessary, but the concentration of where people will be located and where they will shop and send their kids to school may look different. Investors are looking at the “glass is half full” scenario and allocating dollars to pieces of the economy they are confident will survive and thrive over the coming months. May was a great month for all three major indices with the Nasdaq in the top spot adding 6.75% for the month and now positive on the year. The Dow gained 4.26% and the S&P 500 advanced 4.53%. For the year, the top performing sector is technology now up 6.6% and representing names like Apple and Microsoft. The second-best performing sector for the year is now consumer discretionary which may seem counterintuitive based on the unemployment and GDP numbers. However, if you look at that sector and look at some of the largest holdings that would make up that sector you would find Amazon, Home Depot and McDonald’s. Innovation is and hopefully always will be the backbone of the U.S. economy. This pandemic is unlike anything we have ever experienced before and the resilience, creativity, and fortitude of the American people has once again proved we will rise up to face any adversity!

As we head into the summer months, we wish you all get the long overdue opportunity for some time with family and friends. Be safe and stay healthy!

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