The residential real estate market in Northern Virginia remains “resilient” after a year of economic strife, economists say. But the demand for commercial real estate in the region is still uncertain.
As the COVID-19 vaccine rolls out across the country, local economists and industry executives in Northern Virginia gathered Thursday for a virtual version of the Northern Virginia Chamber of Commerce’s Annual Regional Economic Outlook.
The discussion's purpose was to inform community business leaders about economic trends that have stood out over the last year and the factors affecting Northern Virginia’s economic recovery. Specifically, panelists pointed to the real estate market in the region to indicate that it appears the economy is holding up well but emphasized it’s hard to know what to expect going forward.
“We don’t think that when we get back to normal – when all the vaccines have been delivered...that we're going to be looking at the same economy,” said panelist Luke Tilley, chief economist at Wilmington Trust.
Tilley said that a potential outcome of the recession caused by the COVID-19 pandemic might be that businesses become more reliant on new technology, consolidate assets and hire fewer employees. If businesses make these sorts of changes, Tilley noted, it could be both negative and positive in the long term for the national and regional economy.
“And that has an impact both a positive impact on the individual businesses productivity and the negative impact on jobs, at least in the short run – not for everybody – but what it tends to do is some jobs are made obsolete,” he added.
If these trends become a reality, Tilley noted that it’s possible this could affect whether workers return to offices in the future.
None of the panelists said they believe office spaces will become outmoded or that teleworking will become the new norm. As a matter of fact, Bill Collins, executive vice chair at commercial real estate firm Cushman & Wakefield, said that at the moment, “office collections are still very hot.”
Collins noted that workers generally want to return to work in-person, especially younger generations, including millennials. Citing a survey published by his firm, Collins said 78% of people who responded “said that they really need to be in the office at least three days a week.”
According to Collins, many companies, international and domestic, are looking for long-term office leases in urban and suburban areas across the Washington region. The assumption is, Collins added, “six or seven years from now, the market should return.”
Lisa Sturtevant, the chief economist at Virginia Realtors, said the other good news is that the residential real estate market has seen significant growth since the start of the COVID-19 pandemic.
“Our most recent memory of a recession was the 2008 recession when the housing market was just devastated,” Sturtevant said. “So, there were a lot of concerns that the housing market would get hit. But the housing market has been remarkably resilient through the coronavirus pandemic and has really been a leader in the economic recovery both nationally and at the state level.”
The larger shift from urban to suburban and even rural areas in Northern Virginia is in part due to COVID-19. Still, Sturtevant noted that it is also because of the lack of affordable living in the Washington area.
“I don't think we talk enough about the benefits of housing supply or...the cost of not having enough housing for the workforce,” Sturtevant said. “I'm not talking about the spillover of constructing a new home. I'm talking about the economic costs of having labor leave the market because they can't find a place to live.”
In the long-term, Sturtevant said that even if people would prefer to live closer to their places of work, the high cost of living may make remote work more practical if they have to live farther away.
“There's a lot of back and forth about who follows who,” Sturtevant said. “Do the firms follow the workers, or do the workers follow the firms? And it sort of depends on the industry.”
Sturtevant said that the solution to this problem is that more homes need to be built to keep up with long-term demand.
“As working families are making decisions about where to move and understanding what makes people stay in a region – it’s quality of life, which we have here in Northern Virginia. It’s a great place to be [and has] great schools, throughout our region,” she added. “But if you can’t buy a home then you’re going to start looking at Memphis and Charlotte and Atlanta places that also are looking to attract tech firms.”