We could, in our frustration and sadness, call the coronavirus a lot of names. I’ll call it the Great Disrupter.
It’s so great that it disrupted companies that aspired to do that to others. Take Airbnb, now grounded with the whole travel industry, or Groupon, starving along with its base of small merchants. Uber is careening. At least Zoom seems to be doing OK.
But the lions of the old economy are sick, too. It’s becoming clear this virus-induced recession will leave much more slowly than it arrived. How long it will last is anyone’s guess, but here are six Chicago-centric points to keep in mind, ranked roughly from the gloomiest to the most hopeful.
Consumer confidence is a drag
At 70% of the economy, consumer spending sustained our longest expansion even as other fundamentals looked wobbly. Confidence is dashed now, and economists raise the threat of second- and third-wave layoffs that will not spare the well paid. Shocks to the psyche take a while to wear off. Consider the 9/11 attacks and the aftermath. It took nearly three years for airline passenger loads to reach their prior levels.
Charles Evans, president of the Federal Reserve Bank of Chicago, addressed the consumer mindset last week in a livestream appearance before the Economic Club of Chicago. “As we hunker down and stay at home, we are all using valuable resources and savings that we had intended to use for other aspirations,” he said. Trouble containing the pandemic will delay a recovery, perhaps into the first half of 2021, Evans said.
Spending local gets harder
Even before the crisis, times weren’t good on the local commercial street. Start with outmoded space, lack of parking and a poor mix of stores, add in digital shopping and compound that with a hard recession and you’ve got a surfeit of “for rent” signs and landlords with little incentive to maintain things. Sam Toia, CEO of the Illinois Restaurant Association, worries that 25% of his members in Chicago will never re-open. Maybe cheap rents and cash on hand will bring out successors.
Don’t believe the construction cranes
There were 29 of them in Chicago at last count in February by the firm Rider Levett Bucknall, three more than a year ago. But those are all projects with backing locked in. They have their loans, investors and leases. “For anything not capitalized, we’ll see a dramatic slowdown,” said developer Steven Fifield. He said lenders will steer clear of speculative development deals. “Their people will stay back and say, ‘Let’s slow down the new business. We have to keep our powder dry for current borrowers,’” Fifield said. The construction unions report their members are still working; for them, the trouble comes next year.
In the office market, job cuts mean lower demand for space. Ross Moore, economist at the real estate firm Cresa, wrote, “Accounting for new construction, the U.S. office vacancy rate could therefore easily double in the next 12 to 24 months to nearly 20%.”
New respect for the suburbs
Chicago has ridden a wave of urbanization led by young people drawn to other young people. The West Loop can look like a post-graduate campus town. But something about a plague makes living cheek by jowl less attractive. Then those folks go to work in techie open-plan offices that cram people together and give them a coffee lounge to keep them happy. Some may decide that living with backyards like their parents did isn’t so bad.
Real estate adviser Cushman & Wakefield tried to rescue the open-plan concept by suggesting traffic patterns in these offices encourage social distancing. It’s created a campaign called “Six Feet Office.” Sounds too much like “Six Feet Under.” Working from home is an option for some. For others, real estate firm Colliers suggested employers try suburban satellites, “touch downs,” it called them. It’s not telecommuting. It’s semi-commuting.
Globalization meets a small world
Companies will rethink far-flung supplier networks while not abandoning them. Chicago, with its resources in advanced manufacturing and its terrific distribution links, stands to gain here. There’s a committed network of corporations and academicians already at work on ventures such as the mHUB center for product innovation. If the University of Illinois can still afford it, its plans for a technology center at The 78 development south of downtown holds a lot of promise.
This will end. We are social creatures, and we will again attend reunions, concerts and ballgames. Economists, perhaps with too much time on their hands at home, have widely discussed the shape of a recovery. A “V” or a “U?” I go for the Nike “swoosh.” Recovery is something we’ll have to work for.