LOCHABER NO MORE
The impact of the Covid-19 pandemic has been immense, not only in terms of the health, social and economic effects seen over the past few months. The rapid changes it has forced on the way people across the world have had to live their lives deal with huge consequences, Some of these impacts are, of course, temporary, but given that crises tend to accelerate trends that were already under way, many may have lasting implications. These longer-term consequences have been the subject of much discussion, provoking forecasts of a very different world to which we will all have to adapt. Some of these forecasts are perhaps a bit extreme and over simplified but the outlook has certainly changed. Below are just a few brief examples.
The most obvious way, we think, is that having acted swiftly and aggressively to support economies with both fiscal and monetary stimulus, policy makers will find it difficult to unwind this huge intervention. Thus, we believe that they will run the risk of their economies overheating in recovery rather than take the risk of a longlasting recession. That means the return of inflation. It may take a while and it won’t be seen as a concern by many, not least because governments will benefit from the help it gives them in reducing their large deficits. From an investment standpoint it suggests that real assets will be an important part of a portfolio.
The way that a large part of the workforce was able to cope with a rapid switch to working from home has led many to forecast that it will become a permanent way of life for large numbers of employees. A reluctance to travel on public transport, combined with the need for social distancing and concerns about the ability to catch the virus via recirculated office air have strengthened this dynamic and the longer the pandemic lasts, the more pervasive this effect is likely to be. However, it seems to us that the real driver to the working from home dynamic is that employers have seen the benefit of it. Employees genuinely have been working, and in many ways, have been more productive at home. We have even heard reports of companies finding that their callcentre staff have been significantly more productive (particularly in terms of absenteeism) when working from home. We don’t expect that companies will scrap offices altogether but as they reappraise the need for costly central business district space to house a workforce which may only be attending the office, say, three days out of five, firms may well decide that they need somewhat less space. Some may even decide to move to a more decentralized structure and adopt a hub and spoke configuration in their use of office space allowing many employees to attend cheaper, more local offices less frequently and saving the business money without compromising the cultural benefits of having employees in one place.
It seems to us that this might be a particularly good approach for the public sector. While this would be a challenge for large commercial real estate companies with a bias to CBD properties, it would also be an opportunity for the growth in smaller, more local commercial developments. Much has also been written about the fact that the coronavirus epidemic has accelerated the decline in physical, store-based retailing. Traditional retailing had indeed been under huge pressure before lockdown and was not helped by it. Online deliveries have risen exponentially through the crisis, a number of well known retailers have declared bankruptcy and in the UK, shopping mall owner Intu finally collapsed under the burden of huge debts. We doubt that this trend will be reversed and fully expect retailers who can not adapt to the new omni-channel world will struggle to survive. However, it might just be that if the working from home dynamic plays out as described above, then the much forecast “death of the High Street” may be too pessimistic. Greater local traffic and footfall generated by people spending more time nearer to home, might allow town centres to revitalise themselves and create a new shopping experience based around convenience. Space precludes us from delving further into the potential impacts of the COVID-19 pandemic on the way we live in the future, but much will change. If the Proclaimers were writing their “Letter from America” today, the list of “no-mores” might include: buffets, business travel, cruising and hugging but hopefully some forecasts will be wrong.