Former Maine Economist On How The Pandemic Has Affected The State's Real Estate Market
Maine’s real estate development community will gather online Thursday for an annual meeting that had to be postponed last spring.
Among those speaking to the Maine Real Estate and Development Association event will be independent U.S. Sen. Angus King of Maine and former Maine State Economist Charlie Colgan, who’s now director of research at Middlebury Institute of International Studies at Monterey, in California.
Colgan prepared an economic outlook for the group, and says the pandemic has made economic forecasting much more difficult.
“There is no coronavirus variable in our model,” Colgan told Morning Edition host Irwin Gratz. But he says Maine went into the pandemic in good shape economically and has largely stayed in good shape, both economically and medically.
This interview has been edited for clarity.
Colgan: Maine has been a combination of very lucky and very rigorous, and the two are not incompatible with one another. They are, in fact, both necessary. Maine has been able to get and keep the relatively straightforward virus management measures in place and to have them disseminated through the state pretty quickly and pretty effectively.
Gratz: This has exposed some interesting fault lines, both in the society and in the economy. Particularly in the economy, it seems like this pandemic-induced recession is not hitting professions particularly hard, but hitting retail — especially small-scale retail — extremely hard. Is that your sense of it?
Oh, yes. I mean, if you look at the data, construction is typically an industry that leads and lags out of recessions. Construction employment during recessions nosedives. It’s barely changed now. It’s down a few hundred jobs from the peak, whereas accommodation and food services has lost tens of thousands of jobs, which normally in a recession, restaurants and hotels don’t do all that badly. But this time they’re wiped out. Well, the construction industry keeps going. A lot of professional and technical services have been able to keep going. Though, there have been a lot of job hits in Maine in that sector. Both state and local government have been hit hard in terms of employment. Normally they’re a stabilizing force, this time they’re not.
So in a number of ways, while the top-line numbers for unemployment and GDP loss are pretty awful, this recession completely reverses patterns that we’re used to. The combination of the pandemic, plus the availability of the technology that we’re using for this conversation, internet-based video conferencing, is going to radically alter our work patterns into the future. It can’t not do it. We basically changed the economy and the functioning of the economy for many different people in two weeks in March.
REI, the big L.L.Bean competitor headquartered in Seattle, just built a $100 million new office complex to run their business and they’ve decided to close it. They put it on the market, and everybody’s gonna work from home. Well, that’s gonna have really profound effects on the use of space, on the transportation system, on a whole bunch of things that are going to take some time to work out.
And perhaps germane to the reason we’re talking now, this is going to have an impact down the road on real estate, is it not?
There’s a big debate in the real estate community and rightly so, and no one really knows the answer to this. On the one hand, you can take the REI example, we’re just not going to need as much new office space. On the other hand, you can argue that since it’s pretty clear now that the coronavirus, even with a vaccine as effective as the flu vaccine, you’re still looking at pretty significant health risk from a lot of crowding. And that means that instead of needing less office space, we may need more, because we may have to be taking up more floor space and more parking space for people who do come to the office.
Retail space. That’s the other portion of the economy that’s being drastically affected by this, and some of those changes are not going to be reversed.
First of all, there has been a decline in retail employment that has been ongoing since the Great Recession, and it even preceded that a little bit. So the amount of space that we have been devoting to retail, big box stores as well as little stores, has been declining and shifting. But other things have come in to take its place. You see urgent care centers is one of the ones I’ve noticed the most. Of course, Starbucks is ubiquitous.
The challenge for retail space is a lot of it is reusable. And a lot of it is in places that could, for example, accommodate, with some redesign and re-engineering, multifamily housing needs for an aging population. There is that opportunity. On the other hand, there’s an awful lot of retail that just sticks out there in kind of weird places, because that’s where the open land was in the ’70s or ’80s. And I’m not sure what’s going to happen with that.