Commercial Real Estate in the Age of the COVID-19 Virus

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Commercial Real Estate in the Age of the COVID-19 Virus

Most of us remember the movie Outbreak, which turned 25 years old last week. A deadly virus had been spread by a spider monkey and a dramatic hunt for the simian patient zero ensued. The drama of the current outbreak hasn’t come from finding the source but rather the public and media reaction to it. Travel bans, mass quarantines, indefinite closures, toilet paper hoarding, social distancing, Purell gouging. These are now part of our reality and have become effortless in our vernacular. COVID-19 should be taken seriously. But with every media outlet looking to serve ad impressions, companies using it as an excuse for PR, and pundits offering unsolicited opinions, the important thing is to stay informed. Tracking the spread of the disease second-by-second and worrying about worst case scenarios are not helpful. We all need to do our part so we all need to be spending our time thinking about ways to help those in need, practical solutions to slow the disease and preventative measures for future health crises. The property industry is no exception.

So what can the property industry do to immediately respond to COVID-19? The first thing that any property should do is educate its tenants. Whether the building is multifamily, offices, retail, or any other space, building tenants need to be aware of what steps they can take to prevent more people from getting sick. In IREM’s webinar, they asked Steve Core the President of RiverRock Real Estate Group and Cindy Clare the Chief Operating Officer of Bell Partners, what their properties were doing to address COVID-19, and both of them stated that awareness and education were the very first steps in managing the situation. Mailers, emails, and posted notices should include information about what the disease is, how to prevent it, what the property is doing to be proactive, how they are monitoring the situation going forward, what tenants can expect as far as future updates, and further resources including links to information from the CDC and WHO. 

Simultaneously, properties should be implementing disease control measures, such as more frequently scheduled cleanings, stocking up on disinfectants and supplies, providing access to hand sanitizer and disinfecting wipes in all common areas, and ensuring frequently touched surfaces (counters, door handles, devices, etc.) are being cleaned daily, if not more. 

According to the IREM webinar, both Bell and RiverRock have already implemented remote work policies and revised sick policies. This is something businesses from all sectors should be doing, not just commercial real estate. Clare states that in their offices, if an individual is sick, not only is it mandatory that person stays home (with pay), but the office will then be closed for a day to deep clean before the rest of the employees are allowed back. She also highlighted the importance of making sure employees understand proper procedures for reporting illness, especially if policies have recently been updated. RiverRock has even been paying for employees to find non-public forms of transportation as well as enacting remote working for anyone able. To do this, it requires companies to have a strong business continuity plan in place because IT systems, cybersecurity, and cloud storage must be accessible and up to date as well as the infrastructure to support employees. “If you haven’t done it already, you’re already behind” states Core when discussing RiverRock’s business continuity plan.

COVID-19 has forced people to work from home at a scale never seen before (so much so that it even has its own internet abbreviation WFH). Even those who may have never considered remote work prior to the pandemic are doing their best to implement more flexible work options. Even before COVID-19, many companies were already choosing to implement remote work and flex work options for employees as a way to improve human experience. Human experience is essentially looking at the work experience from the employees’ perspectives to determine how work can play a role in improving their lives. Work-life balance has become increasingly important in the war-for-talent, and one solution has been remote or flex work options. A JLL sponsored report was just released by the Harvard Business Review Analytics Services called Improving Business Performance Through More Meaningful Human Performance. In it were some metrics that pointed to the growth of remote work across the over 340 executives interviewed. The report states that “more than half of respondents provide workers with the digital technology they need to work remotely or on a flexible schedule.” Giving this type of flexibility, the report said, is an important way for corporations to achieve a better human experience for their employees. “The payoff of more meaningful work,” the report states, “is significantly better business performance.”

The study was done before the widespread COVID-19 outbreak, something that came up very quickly in a conversation with Alex Clemente Managing Director at Harvard Business Review Analytic Services, who worked on the report. “If we did the report again today, I suspect that Health and Wellness would have been higher on the lists,” he said matter-of-factly. “Providing new health and wellness benefits at little or no cost to workers” came in a close fifth on the list of Human Experience Priorities, behind professional training, sustainability, social contribution and appealing workspaces. This outbreak will certainly test companies’ abilities to be able to provide comprehensive health and wellness benefits, especially in times of crisis. “Wellness benefits are a complex thing,” Alex said, “but in the end, it is ensuring your most important asset, your people.” Regardless of where employees are working, COVID-19 should still be a wake-up call for properties to make sure their building is as “healthy” as it can be.

Regardless of where employees are working, COVID-19 should still be a wake-up call for properties to make sure their building is as “healthy” as it can be. John Macomber is a senior lecturer at the Harvard Business School and co-author of Healthy Buildings: How Indoor Spaces Drive Performance and Productivity, forthcoming next month from Harvard University Press. In the book, Macomber and Joseph Allen (his co-author), talk about nine foundations that lay the groundwork for building health, but when it comes to infectious disease, Macomber believes that air quality is by far the most important, stating “The first line of defense, of course, is to improve air quality.” Macomber also believes improving air quality will not only give a building the biggest ROI, but it’s also the best way to improve a building’s health: “Without question, the one thing for both owners and tenant facility managers to change is around ventilation. Run the fans, upgrade the filters, and keep the filters clean. It’s a very short-sighted savings to pinch pennies in energy and filter line items when there are tens of thousands of dollars at play in health care costs avoided and in benefits to be gained from the increased productivity of the people inside.”

Co-author Joseph Allen, the director of the Healthy Buildings program at Harvard T.H. Chan School of Public Health confirms air quality and ventilation are huge factors in a building’s health. He recommends fresh air in large quantities because it “helps dilute airborne contaminants, making infection less likely.” If better air circulation is not an option he recommends upgrading or improving air filtration, explaining that “most buildings use low-grade filters that may capture less than 20 percent of viral particles. Most hospitals, though, use a filter with what’s known as a MERV rating of 13 or higher. And for good reason—they can capture more than 80 percent of airborne viral particles.” He also explains that higher humidity ranges between 40 to 60 percent are optimal for lessening a virus’s likelihood to spread. Properties making contingency plans for any future outbreaks should include information on how to adjust the building’s settings to help prevent the spread of viruses, but they also need to keep in mind tenants’ comfort level. Moreover, property managers should make sure than their routine maintenance protocols include the recommendations from Allen and Macomber, especially in terms of air quality. 

Technology plays a big role in building maintenance, contingency plans, and for any preventive measure going forward. Prabhu Ramachandran, CEO of Facilio, explains how facilities platforms will be game-changers for portfolios in situations like COVID-19. “Real-time transparency into all aspects of building operations and data-driven decision making will be crucial to ensuring that targeted intervention is possible, across an entire building portfolio,” he says. The value of technology is that it allows owners and managers to be proactive and measure their efforts. Ramachandran explains, “Data relating to occupants, visitors, air quality, temperature, routine cleaning records, and humidity can be very useful in situations like this.” 

Tomas Novotny, Chairman for 720 Degrees, agrees with the importance of implementing technology to adjust indoor environments and make them less likely to spread viruses. “Building operators and facility managers can, through our system, understand better how to improve on ventilation, temperature, or relative humidity, which can have an effect on viruses,” says Novotny. He also explains this technology can be installed in all kinds of buildings from older properties to new developments, meaning regardless of the type of property, there are preventative measures available to improve building health.

Thus far, the commercial real estate industry has been moderately affected by COVID-19, but the impact on certain parts of the business could be exponential. Office space tends to be safer during disruptions in the market simply because the lease terms are long and have strong corporations backing them. But if companies find they are able to keep productivity high while working remotely some might reconsider their space needs during the next lease term. Co-working companies, which sell human interaction as part of their product offering, might see the sharpest declines. 

Retailers will most likely be taking the biggest hit, including stores selling non-essentials, movie theaters, gyms, and entertainment venues. Apple (outside of Chinese locations) and Patagonia have already closed their stores temporarily to protect employees and customers from possible transmission. However, hotels are particularly vulnerable because of travel bans coming from all directions. The Commercial Observer reported that “on Marriott’s recent Q4 earnings call, CEO Arne Sorenson noted that in February revenue per available room was down in China almost 90 percent year over year and that the company had closed 90 of its 375 properties in the country.” Even so, taking advantage of technology like digital tours can ensure future bookings for event spaces once things return to normal. The hospitality sector as a whole can expect a huge downturn, but in the meantime, commercial properties need to take every precaution to make people feel comfortable and safe in these spaces.

For owners, managers, and even tenants, sticking your head in the sand and waiting for COVID-19 to blow over is no longer an option. The only option is to take immediate action and make smart decisions for your building and your people. Unfortunately, deadly viruses are nothing new. Remember MERS and SARS? However, widespread disease is a lot easier to ignore when it’s not on your continent, and COVID-19’s predecessors didn’t stir the modern world into self-imposed isolation. Now, the virus is here, and it’s potentially in your building. Immediate action includes promoting flexible/remote work options. It includes rigorous sanitation and the infiltration of fresh air. It includes education for tenants and preventative measures to improve building health for the future. It includes using technology to enhance and monitor improvements. But more than anything it includes being informed, staying sane and doing our best to help safeguard the less fortunate.