COVID-19 pandemic has catalyzed decentralization: RBC

by Neil Sharma on 16 Dec 2020

Although 2020 will soon be in the rear-view mirror, the changes it ushered in will remain into 2021 and beyond, according to a forecast from RBC Economics.

The COVID-19 pandemic upended the way people around the world live and work, and RBC believes it’s the dawn of a new epoch of decentralization. The economy isn’t expected to return to pre-pandemic form before 2022, and although some industries, including real estate, have proven resilient, others haven’t. The landscape is further convoluted by decentralization, which refers to the exodus from downtown towers to home offices, and in many cases from cities to suburbs.

“That’s driven up prices in smaller communities and for larger detached houses,” noted the report. “It’s also increased rental options and lowered rents in cities. An ongoing blend of remote work could see the appetite for more space continue.”

Although smaller communities’ housing markets will be overwhelmed by erstwhile city dwellers, younger and first-time buyers will benefit from softer condo prices in the country’s major centres.

Remote working opportunities have doubtless fuelled the exoduses from big cities, as 5 million Canadians began working from home this past spring. By the beginning of Q4-2020, 2.4 million Canadians who usually work in offices were still working remotely, but that might not last. RBC found that only about 30% of organizations for which remote working is even possible will continue allowing their employees to do so after the pandemic subsides. That could have lasting ramifications in Canada’s major urban centres.

“The work-from-home model is here to stay, to some extent and for some workers. With so many employees demanding remote work, and experience showing that it often works well, companies will need to create flexible arrangements if they’re to compete in tight labour markets for highly skilled and mobile knowledge workers. While this flexibility will vary greatly across industries and workers, it will have implications for commercial and residential real estate and the design of our cities.”

Household savings have skyrocketed this year because, in addition to many households retaining incomes, non-essential spending has been largely curtailed by the pandemic, and lenders extended credit deferrals. RBC estimates that household savings balances increased by $160 billion through the last three quarters compared to before the pandemic.

“But another key factor was the federal government’s stimulus,” said the report. “By our estimate, in the second quarter, it injected $30 billion more relief into household accounts than was lost through the loss of income because of furloughs and job cuts. As government programs wind down and consumer savings dwindle, consumer spending will increasingly depend on employment gains. For that to happen, businesses will need to re-open and expand.”

The biggest variable in 2021 will be the COVID-19 vaccine, which is slated for distribution through H1-2021, but its efficacy, public acceptance, and how well it will be dispensed are unknown. What is known is that without a vaccine, the economy won’t reopen—although when it does, don’t anticipate expeditious recovery.

“But a reopening of the economy—and even an unleashing of pent-up demand—won’t be enough to bring GDP back to its pre-pandemic state in the coming year,” said the report. “The hardest-hit sectors—restaurants, hotels and conference centres, for instance—will only pick up in a sustainable way after the virus’s full risk has faded. The scar tissue of permanent business closures may delay a full recovery until at least 2022.”

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