The COVID-19 Long Haul

We could be in for a long haul with COVID-19. Here are a few predictions for what that might look like.

As COVID-19 numbers continue to climb around the world, researchers are raising the possibility that we could be in for a very long haul: instead of weeks of isolation, we could be in for up to a year and a half. If normal life has to be put on hold for that long — albeit with pauses to release us from our seclusion — the effects on society will be far-reaching and fundamental. Here are just a few of them.

Commercial real estate vacancies increase as small businesses go under.

  • Small businesses cannot endure being shuttered for months on end: we’re already seeing the effect. Most are struggling to survive, and unfortunately many won’t. As the spectre of bankruptcy looms, much commercial real estate will become vacant. In order for owners to try to keep revenue from those properties flowing, many will be flipped to the residential rental market, especially in cities with rock-bottom residential vacancy rates, such as Toronto and Vancouver. Commercial real estate is generally more valuable per square foot than residential, so owners won’t want to see these properties stay residential forever; they just want something to continue to generate revenue for the length of the downturn.
  • Since they’re already as tight as a drum, residential vacancy rates in cities such as Toronto and Vancouver won’t skyrocket as a result of this, even with the usual recessionary pressures.
  • As  people lose their jobs, many will have to make tough choices, moving back in with parents or relatives, or subletting or share their units to make ends meet. This will further increase the inventory of rental properties, and rents will decline even further. In Toronto and Vancouver, this will be seen as a rebalancing. In other places — especially those already reeling from the collapse in oil prices — another blow to already beleaguered landlords and investors.

Whole sections of the economy will need to be put on life support.

  • Anything that caters to groups of people (airlines, bars, restaurants, gyms, etc.) might fail if not thrown a lifeline. The government will extend that lifeline to many, because of the potential disruption to society and the economy if they don’t, not to mention the enormous cost of rebuilding whole industries from scratch if they collapse.
  • Some of these industries are essential to the functioning of our society (airlines, for example) and some aren’t (gyms). The ones that aren’t will, unfortunately, be allowed to contract indefinitely, as scarce resources are allocated to keep the essential ones treading water until they can swim again in 2021.
  • Unfortunately, this risks creating resentment, as the government picks winners and losers among industries. This will inevitably breed resentment among employees of the “losing” companies, who will increasingly feel like victims of an economic system stacked against them. This will result in a bump in support for unionization and left-wing parties associated with them, such as the NDP in Canada.

Pop-up shops become an essential part of the economy, opening up during quarantine gaps.

  • Businesses can’t afford an 18-month lease if they’re only going to be open 1/3 of the time, so many will pop up for a couple of months during gaps in quarantine, and go back into hibernation.
  • The public will become accustomed to this cycle, even after COVID-19 is beaten, and the trend will continue well past the end of the crisis. Pop-ups won’t threaten the eventual resurgence in permanent brick-and-mortar shops in 2021, but will become a bigger part of the retail landscape.

The death of malls accelerates as people avoid open spaces.

  • They’re already reeling, and unfortunately COVID-19 will accelerate the process.
  • These spaces are are already being reimagined for residential and other uses, and this trend will continue.

Industries that have resisted delivery embrace it

  • Previously in-person businesses such as dry cleaners will move to a 100% pickup and pick-up/drop-off model to survive. Athletic trainers, music teachers and others are going online, some permanently. Most things that involved dreaded face-to-face human contact will either be delivered (such as meals), move online (trainers) or be learned (haircuts) so that people can do them on their own without the much-feared human contact. If you want a template for this kind of self-resiliency, check out the 1930s.

Robots replace more and more farm workers

  • Closed borders around the world, possible reductions on inner-state travel, and workers getting sick en masse will reduce the labour supply during harvests. Harvesting robots will see a surge in demand to compensate, and some laid-off workers from other industries will fill the gap.
  • In the short term, until robots can be manufactured and deployed in greater numbers, harvests will become a stressful time for supply chains, and rely more on displaced human employees than on robots.

Businesses, individuals and our economy will face enormous challenges if social isolation drags on, even with pauses built in. The good news is that many societies such as Canada’s have the financial stability and health to be able borrow or print enough money to make it through even an extended period of economic strife. Other economies that are more heavily indebted and slower-growing, such as Italy’s, face a far more uncertain future. In the end, COVID-19 will bring a financial reckoning unlike any we’ve seen for a very long time, followed by a period of austerity, as many countries try to bring their balance sheets back into line, even if only partly. Austerity may not be the best prescription for a recovery, but many countries will adopt it.

It’s important to remember that the world will make it through the crisis. The main question will be what it learns in the aftermath, and whether it’s willing to commit the resources and planning to ensure this doesn’t happen again.