Posted by Brandon Copeland
Is it a buyer’s market? Is it a seller’s market? Is it a market for anyone at all? COVID-19 has undoubtedly thrown confusion into the world of real estate in St. John’s. Economically, most reasonable observers would acknowledge that the province is in a very tough spot. On March 20th, with cases of the coronavirus still low in Newfoundland, Premier Dwight Ball suggested to Prime Minister Trudeau that Newfoundland and Labrador had “run out of time”. The reality of that letter has not disappeared, but the ensuing COVID-19 support from Ottawa certainly may have delayed our misfortune for a time.
Over the past several months, those who work with and own real estate have faced challenges. The halt of business across the country has left many tenants unable to pay their rent – a reality that subsequently hurt the ability of landlords to pay their mortgages. One would assume that this situation reduces the demand for purchasing property, and subsequently lowers prices. However that hasn’t seemed to have been the case according to NLAR – from a residential standpoint it seems that despite a slight drop in March, the average price of a home has not really dipped significantly in Newfoundland’s capital city. The major dip came in sales quantities - certainly not a surprising reality, when people spent much of the past several months locked away inside their homes. Perhaps any significant market price change has been warded off simply by a lack of much market activity at all.
What are we likely to see in the coming months, and years, as we recover from coronavirus? Thinking both locally, and more broadly, I have a few predictions about real estate.
First – This is NOT the End of Commercial Real Estate
Much has been stated about how COVID-19 will spark the long-touted move towards a remote workforce. Having been quarantined for months, employers around the world have realized that employee productivity can be achieved outside the walls of an office. Some observers have suggested that this will result in many commercial leases lapsing and not being renewed, or at the very least, usable square footage being reduced. Commercial landlords beware, your tenants don’t need you anymore!
I, for one, don’t really buy into the doom and gloom around commercial real estate, although I DO think that flexibility for workers may see a boost. I’m all for folks working from home when they can, and many in my office have acknowledged that a beer on the back deck on a sunny Friday doesn’t stop an employee from plugging away at a new lease document, or making a phone call to a prospective tenant. This shift in mentality may do wonders for the happiness of staff.
However, offices will remain a requirement, and commercial spaces won’t shrink. While pundits exclaimed that commercial spaces weren’t needed anymore, parents everywhere simultaneously bemoaned the challenges of working with toddlers. Extroverts dreamed of the return to the water cooler for a mid-day chat. Teams complained after the shiny-newness of Zoom transitioned to weird meetings with poor lighting. While the flexibility of working from home has been enjoyed, I don’t believe that this new normal is desired as a replacement to the office. Instead, I believe working from home is an attractive supplement.
As for the notion of “downsizing” to accommodate more transience? The globe just learned what “social distancing” means. Hot-desks? Co-working? Open-Concept? While I love these sorts of office designs, the bottom line is that many businesses will be looking to put more space between their employees as we continue to battle this virus, not less. Even post-vaccine, which hopefully is sooner rather than later, I think many of those who made it through 2020 will have life-long mindset changes regarding proximity to others. Expect a larger “square foot per employee” ratio for office space.
All-in-all, I think the office building is safe. The workplace may change, but the need for commercial space will remain.
Second – St. John’s Housing Pain is Coming, But Not Yet
This is a less positive prediction, but I think its an honest one. When I look at our home province, I feel like there are challenges ahead. I feel like we might be experiencing them this summer, if this summer wasn’t so weird already.
Basis of the prediction? Jump back to the hurting economy I previously mentioned. The reality of Newfoundland in March isn’t going away, it’s just been put on pause. CERB has helped the population by providing a cash stimulus to many that otherwise wouldn’t have it. However, we have had several offshore projects delayed, and the government debt has ballooned to what I believe is a completely unsustainable amount. I don’t think anything I just said is shocking.
So what happens as we return to normal? Sadly, many businesses have closed, or will be forced to soon. This is an upsetting reality due to a miserable six months, and stimulus and support can only go so far. CERB will transition to EI for many, and the job hunt is always harder when more people are looking. The delayed oil and gas projects won’t be employing folks any time soon, nor will they be filling the provincial coffers. And all that debt the province has? The interest continues to need to be paid. Government has tough decisions to make, and I can’t help but feel like some of those tough decisions will result in the reduced size of the public sector.
In my opinion, all of these very sad realities are coming, and if they hit at once it will inevitably impact the wealth of the province. The real estate impact will of course be fewer folks buying property. I think a price dip will follow. My expectation is that this perfect storm will be seen in 2021, but it depends how soon the provincial government needs to face the economic reality of the province. Perhaps a new party leader for the Liberals will be the one to come in and rip the bandaid off.
A hot take? Maybe. Time will tell.
Last – Public Space Will be Re-imagined for the Better
I talked about this a bit the last time I posted. I’m going to risk being obnoxious here, and quote something I wrote a mere two months ago: “I strongly believe this experience may have made people think harder about carless streets – or certainly what a street could be capable of when the traffic is halted. Interesting discussion followed about repurposing our streets for public gatherings, or at least creating opportunities in the future to close down streets for this sort of recreation.”
Well, the City of St. John’s, it seems, agreed with me. One and a half months after I wrote that blog post, the City of St. John’s approved the concept of a Pedestrian Mall on Water Street. On Friday of last week, the mall opened, and the reception that I have heard has been exceptional.
My bold prediction for St. John’s, based on only a single cold week of operation, is that the summer Pedestrian Mall will be back. Perhaps an annual event, I think the reception has been insanely positive from both business-owners and clientele. I’ve spoken with a few of the establishment operators downtown, and I feel like the idea is being embraced in all the right ways. Working in Atlantic Place, I poke my head out daily. Water Street feels renewed. Beyond a simple stimulus for business owners during a challenging 2020, I think that a consistent, annual, pedestrian mall could absolutely contribute to revitalizing interest in living, working, and setting up shop downtown. These sorts of initiatives are popping up around the world, and I think many of these projects - born out of COVID-19 - will have lives much longer than the virus.
Our downtown has undoubtedly been struggling, perhaps in an attempt to handle a global pandemic we have inadvertently found the cure.