Trends After Corona: Burst of Innovation and Turmoil in the Real Estate Market
Get ready for a lot of changes.
Summary
Connecting the dots, I expect to see the following over the next 2–5 years:
→ Many people leaving the cities, especially:
- Families with kids, if the parents can keep their jobs remotely
- Elderly people who care more about personal safety than in-person contact
→ Residential property/rent prices in big cities to rise more slowly or even to decline
→ Companies reducing their office space in cities, while encouraging their employees to work remotely multiple days a week
→ Commercial property, especially offices, experiencing a price decline due to decreased demand
→ Unprecedented burst of innovation and therefore creation of a myriad startups dealing with challenges of post-Corona world facilitated by:
- lower barriers to start a company such as less competition, lower office expenses, etc.
- availability of skilled labor, since so many people lost their jobs and are looking for new ones
How I got there
Coronavirus changed everybody’s lives. The vaccine is still not available and its efficacy can be only guessed at this point.
Therefore, it is time to speculate about trends that COVID started or will help to facilitate.
Three things already happened:
We know that:
- working from home effectively works
- big crowds are a great place to catch COVID, which means they are dangerous and to be avoided
- millions of people lost their jobs
We actually know more than that, for example, that all statistics are political, complex predictions are always off or that democratic countries cannot trust China. These points will be considered in another post.
Working from home
Said upfront: Not everybody can work remotely. Fire fighters, cleaners, truck drivers still need to be out there. However, for many white collar workers, like programmers, analysts, accountants, etc., the possibility of remote work exists. This possibility has existed for a while now. However, until recently, only a small fraction of these “eligible” jobs were performed from afar. It was not uncommon to work 1–2 days a week from home, but the vast majority of work is still done from the office.
Just to get a feeling for numbers, in 2018 the total number of employed in US was ~160 million (all numbers from Bureau for Labor statistics). If assuming that only the information, financial activities, professional and business services sectors shifted to remote work, the move would impact over 30 million people or 20% of the total market!
Up until before Corona, there we significant concerns on both sides regarding remote work. Employers worried about, among other things:
- underperformance
- worsened communication
- less transparency
Employees, on the other hand, had their doubts regarding similar things, but also:
- the work environment at home (dealing with kids, easy access to the fridge, etc.)
- technical set up (big screen, comfortable desk, etc.)
However, imagine a world, where employees and employers can choose if the work is to be done remotely or from the office without any loss of output...
For many companies the points mentioned above proved much less scary than it had originally seemed. It took a little time to adjust, but after months of dealing with various lockdowns and safety measures it seems to be that:
Working remotely most of the time works for both company and employees
Of course, there will be minor issues to be taken care of, like work equipment at home, childcare, etc. But these are peanuts compared to the paradigm shift that enabled the discussion in the first place.
Everybody involved has significant incentives.
For companies:
- No need in huge offices in the city’s best location
- Much easier planning regarding company growth or relocation
For workers:
- Much less commuting, which means more time for other things
- More freedom to choose where to settle down
Direct Consequence
→ Employees are free to move further away without losing their job
→ Almost all companies can reduce costs by opting for smaller offices
Crowds, Social gatherings, etc.
Another lesson Corona taught us is that finding yourself in a crowded place tremendously increases your chances of catching the virus, get sick and maybe infect Grandma. Even before lockdowns took effect, surveys in early March indicated that people were less willing to travel.
So it is very likely that some people will take it slow even when Corona is officially over
Aside from work, the other big attraction of cities vs. suburbs or rural areas is social life and entertainment: sports, cafes, theaters and much more.
Since the beginning of the pandemic, almost all businesses that rely on many people being close to each other, took a serious dive. So even after the pandemic is over, it will probably take a while until the social proximity becomes an advantage. Currently, however, it is a liability as we see cities hit much harder than suburbs.
Direct Consequences:
→ More people considering leaving the city
→ Many challenges for every business that relies on crowds, with no great solutions for them so far
Layoffs
Since the beginning of the pandemic, millions of people lost their jobs. What is more important, though, is: they lost the jobs not because of bad performance or lack of talent but because the market fell apart.
The market took a bad hit and many industries are on the ropes. This means there is an incredible need for innovation to recreate the lost standard of living. By this I mean, for example, large parts of our everyday lives that are highly affected:
- Public transportation
- Live sports in stadium
- (Movie) Theaters, operas and other live entertainment
- Travel by plane, cruise ship, train or bus
- Tourism and many more
With that said, we as a society are now in this unusual spot of having an over-supply of really skilled labor: large numbers of experienced and successful people who know how to work are looking for a job. Combined with a high demand for solutions, the resulting situation is simply loaded with potential.
New companies arise
Available skilled labor and a lot of challenges is already a great mix to see new companies rise. But after Corona, there will be more than just that.
Barriers to start a company will be lower than usual.
- Capital will be available, especially from established businesses looking out for a “savior” to help them adapt. Keep an eye on banks investing in fintech in the hope that AI can tell what investment is good and what is not.
- Customer cost of switching is very low in many industries at the moment, since the current models just do not work. Let us say a startup comes up with an innovation to make restaurants or air travel profitable again → the startup will have more customers than it can handle.
- Government regulation is often a pain point for young companies. However, now you can reasonably expect that many pre-2020 standard practices will be bypassed in order to save the economy. We already see something like that happening with vaccine research.
- Little need for an office to attract talent. A big chunk of expenses usually goes into renting and adjusting the work space. However, in 2021 you almost don’t need an office. People are happy to work from home. On the other hand, if an office is needed, there is plenty of affordable space available thanks to the hordes of companies that went out of business.
- Availability of cheap computing resources via various clouds. High power computing on large scale was never this affordable in all of human history.
In other words, get ready for many talented and skilled people, engaged in solving many problems, having all the tools at their disposal. Mankind Strikes Back, coming to a theater near you in 2025 at the latest.
