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Envisioning a post-pandemic future | Vanguard

The future accelerated

Before the pandemic sent office staff flocking to home workstations, employers were taking an incremental approach to remote work. Recent improvements in office technologies let them untether workforces on a timetable of their choosing. The pandemic took the decision out of employers’ hands.

Similar to how issuers can recall certain bonds when conditions allow them to reissue on more favorable terms, the pandemic functioned as a call option on employers’ incrementalism. No longer could work-from-home arrangements serve as controlled experiments in productivity; they became indispensable. Ready or not, employers for the most part have successfully enabled secure and efficient work from home and redefined team dynamics. The office will never be the same. Meanwhile, significantly reduced demand for office square footage, which had grown on a per capita basis for 50 years, stands to redefine our cityscapes and suburban makeups.

Similarly, the pandemic has ground business travel to a halt. Historically the most profitable business for airlines and hotels, such travel has been replaced by video conferences and virtual collaboration tools. Such a development tests airline and hotel business models that rely on less-price-sensitive business travelers to help keep leisure travelers’ costs low.

COVID-19 has also accelerated the challenges facing restaurants and brick-and-mortar retailers. E-retail and food delivery, already growing in popularity before the pandemic, have become essential to consumers worried about face-to-face interaction. As with office work and air travel, restaurants and retail may not overcome heightened consumer reluctance until an effective vaccine or treatment is developed—something we’re not expecting before 2021. In some cases, the damage could be permanent.

Interestingly, changes to commercial real estate, or at least how we invest in it, had already been occurring in plain sight. Over the last decade, office and retail constituents have fallen from 39% to 19% of equity REIT assets, while residential, infrastructure, and data centers—sectors that are likely to benefit from the pandemic—now make up 45%.1

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