The world is in the middle of a very fluid COVID-19 situation with little positive economic news – jobless claims are hitting all-time highs, the hospitality industry is all but shut down, nightlife, restaurants and retail are getting crushed, and the economy is overall at a near standstill. The impact of a global pandemic is comprehensive in scale, and despite a government stimulus package, it looks like there is a long road ahead of us.
As the impacts of COVID-19 crescendo, my view on what is unfolding is largely through the lens of the PropTech world and our LPs and network.
Aside from the above, what I’ve observed so far is likely as expected:
- Startups planning to raise capital in 2020 (particularly Q2/Q3) are hurting. Valuations are expected to come down (we’re already seeing a bit of this) amid uncertainty, and there’s a weird dynamic of VCs saying they’re open for business yet telling portfolio companies to prepare for the worst and that capital is drying up. There is still a lot of dry powder on the sidelines. It will be interesting to watch these dynamics play out.
- The lucky startups that recently completed raises are sitting pretty. They have strong balance sheets and are still making tough decisions around cuts and cash management, but they’re in a much better position relative to many other firms.
- Real estate owners and managers are stressed. When hospitality and retail are shut down seemingly overnight, it’s not going to be pretty. Their focus is on understanding the depth of the delinquencies they might be facing and the length of time they’ll have to deal with them. Multifamily owners whose tenants are the retail and hospitality workers (and anyone else impacted by this, which is a lot of people) are expecting late payments and delinquencies to rise, and many office landlords are giving rebates or free rent. All of this will flow up to lenders. It will be painful.
- Venture-backed companies may not receive government support. This is still developing, but it appears as though stimulus packages may leave out many venture-backed companies that are being forced to either furlough or lay employees off outright.
We’re all grasping for what a post-COVID ‘new normal’ will be, which is where our team is spending meaningful brain power. The answers, or just possible answers, for questions around our ‘new normal’ will look like will likely cause changes across the PropTech and real estate landscapes.
For example:
- Will this be the tipping point for what many have been saying about the future of work, more specifically distributed teams and remote work? If workers and companies find it more productive and/or comfortable to work from home rather than their traditional office space, employers may opt for smaller traditional offices to allow for WFH flexibility and hoteling-use. Perhaps oddly, that trend would fly in the face of the coworking boom, where a value-add for those that are self-employed or working alone is that they can meet and interact with other people – effectively filling the ‘hoteling’ void for those that lack a home office and allowing for more social interactions.
- Will people consider living or working outside of the dense urban cores, and reverse the ‘urban densification’ trend? Could that lead to more demand in the suburban office parks that have seen sharp declines in value over the years? Will there be more demand for single family homes by people who want to live in the suburbs outside of major cities? How sensitive are we going to be about the health risks posed by anyone and everyone we come in contact with? How can technology facilitate this?
- How will senior care change? What will care facilities do to monitor and protect their residents in an environment where caregivers are in short supply?
- How many in-person interactions will be changed with videoconferencing? What new tools and platforms are poised to grow from this trend? VCs spend a lot of time on videoconferences and I can attest to there being some getting-used to in talking to someone, taking notes, going through slides, and aggregating information. It feels clunky now, but I expect won’t be in the future.
This is just the beginning. Nobody knows if any industry, or real estate asset type, will rebound to their pre-COVID-19 performance levels. Nor do we know how deep or how long things will last, or what shape the recovery will take (U? V? W? WW?). What’s clear to us is that this is shaking up the way that we’re working, where we’re working, and our use of space. In times like these we expect great companies to be born and are excited for the next wave of opportunities.
