COVID-19 Trends and Observations

As engineers, planners, scientists, and constructors, we are wired to find solutions. We are problem-solvers seeking to find the innovative answer to the challenge at hand. However, this time of uncertainty is creating a variety of scenarios that we may not always have the answer to. We are impacted by daily change and disruption.

Always forward-thinking, researching trends, and looking for meaningful ways to provide value and solutions for our clients and communities, VHB thought leaders are constantly imagining what the future may be for our industry, particularly post-COVID.

Current impacts, future trends, and considerations we see across our market sectors is detailed below. Information will be updated frequently.

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Key Observations & Opinion

VHB’s Market Leaders continually connect across our regions and markets to identify trends and observations resulting from COVID-19. The below trends, listed by market, are updated frequently as the pandemic further unfolds.

Transportation

Where do we go from here? Questions we’re considering:

As ridership numbers and revenues are down, how will mass transit respond?
Will workers choose to telecommute when/if given the option? How might this impact their travel mode and existing plans for expansion?
Pre-COVID, mass transit trains were often over maximum capacity. Given the new social distancing “normal”, will customers care more about personal safety and level of comfort? How long before trains are packed again?
What will commuter patterns look like? Will commuter trips into cities and monthly pass usage decrease, especially over the long term? How will that impact ability to develop capital programs moving forward.
Will airport consolidations continue? Similar to transit, how will changes to distancing norms impact aircraft capacity and usage?

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Steve McElligott, PE
Transportation Market

There continues to be ongoing discussion of a transportation-focused stimulus bill at the Hill, with the centerpiece being $329B for highway, roads and bridges, with an additional $105B devoted to public transit. Railroads would receive $55B under the plan, with airports slated to see $30B.
Hopes of this infrastructure stimulus bill are promoting the progression of “shovel ready projects”—projects deemed most likely to create jobs and kickstart the local economy quickly. Additionally, projects presently in, or yet to enter the NEPA process, can benefit from developing streamlining approaches to federal approval.
Creative clients are capitalizing on low interest rates and reduced volume of asset usage to accelerate construction of otherwise stalled projects to bolster the local economy and reduce project backlog.
Construction on transportation projects continues in almost all locations, as local authorities are considering transportation construction essential activities. While still moving forward, inefficiencies and potential delays are expected resulting from labor and logistics issues relative to the orders.
Mass transit has seen a sharp decline in ridership, with participant systems declining near 90%. U.S. transit agencies are receiving their largest aid package ever—$25B, which will help keep workers employed the next year. After the COVID-19 crises ends, how mass transit responds and the mass transit that comes back may look vastly different than in the past, with significant passenger health, safety, and ridership comfort top of mind.
Operating and capital funding from toll revenue and user fees, gas tax revenue, and transportation allotted share of state and local sales taxes have experienced a drop due to a lack of cars on the roads and reduction in consumer buying.
The aviation industry continues to take a major hit, with several airport clients down more than 20% and decreases ramping up. Airport projects driven by PFCs and airline landing fees will see short term slowdown, however funding in the recent stimulus bill targeted specifically to the aviation industry will alleviate these impacts thru 2020. Recent CARES funding will simply replace subsidize incurred operating expenses enabling financial viability. Reduced revenue streams are impacting longer term capital outlay.

Real Estate

Well capitalized firms are positioned to acquire distressed assets for repositioning. It is early in the process however; regional mall anchors and distressed retail centers are prime targets.
Multifamily developers and owners were pleased with April and May rent payments. Approximately 84% of landlords were able to collect rents from tenants. Multifamily owners are being generous with their time and flexibility and they are working to address tenants’ individual situations while modifying their operations and cleaning protocols.
There was pent up residential demand going into this crisis and the residential sector may rebound more quickly than other real estate sectors. Record low mortgage rates will boost residential growth.
Industrial developers are continuing to build out facilities for end-users in key markets along the East Coast. There is also development of last mile delivery centers in major urban areas. Some large industrial REITs have halted speculative developments for now.
Online grocery stores sales are driving demand for cold storage facilities. Steady growth in online grocery shopping was driving demand for cold storage nationwide, but the COVID-19 pandemic is accelerating this trend and will contribute to even greater demand over the next five years.
Retail Center owners are anticipating many more permanent closures of anchor department stores. Major repositioning opportunities will exist, but owners may be wary about backfilling with entertainment mixes or tenants with post-COVID concerns. Center owners are focused on getting control of the real estate assets, owned by the anchors, and are looking at redeveloping the big boxes with a mix of uses including residential, warehouse, grocery, office, medical and last mile distribution.
Restaurants are trying to stay open by servicing customers through delivery and curbside pick-up locations. In addition, many restaurants are looking to add drive-throughs to their delivery mix to continue to service consumers in key markets.
Bank credit is “frozen”. Most banks are preoccupied with processing Small Business Administration loans for fees, thereby slowing development and construction loan activity. Furthermore, loan officers are having difficulty evaluating credit and pricing for real estate assets.
Opinions on the recessionary recovery period is seen as much longer, with elongated “U” lasting into Q2 and Q3 in 2021. Some sectors including hospitality, travel and entertainment, may take even more time to recover.

Where do we go from here? Questions we’re considering:

Will Gen Z follow in the footsteps of Millennials? Will they move to the urban core or to the suburbs?
Do Big Boxes present opportunities to industrial developers who are seeking to expand their last mile distribution facilities?
Will landlords need to redesign offices, to accommodate social distancing, in order to ensure that employees are comfortable returning to their workspaces? What is the balance between transit and parking? Will employees be driving or continuing to take public transit?
When will mountain resorts be able to open to accommodate guests who are seeking outdoor activities?
What is the new normal for our theme park clients?

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Steve Thomas
Real Estate Market Leader

Institutions

For education and healthcare institutions, the COVID-19 pandemic is an accelerator, prompting unprecedented responses—some untested—within a rapidly evolving socioeconomic context.
In education, trends and issues that had been underway for the last decade have been pushed forward.
- The move to a virtual learning platform, combining the on-campus experience with on-line delivery.
- The value of a “traditional” college degree.
- The duration of the educational program—3/4/5 years? Lifelong?
- Privatization of the delivery model, and the physical assets.
- Intense revenue pressures on public systems that rely on funding from tax receipts and on small, tuition dependent colleges.
In healthcare, COVID-19 has shown a bright light on the limitations of the current system, from research to clinical care to the payment model.
In major metro areas, human/physical/financial resources are stretched. Fundamental issues in basic preparedness in identification, testing, treatment and communications have been exposed.
The economics of health care—with profitable elective treatments and expensive drug therapies being prioritized relative to public health, vaccine research/development and community-based health—has brought this imbalance in sharp relief.
Health systems are facing extraordinary revenue pressures as the current payment model is stressed.

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Where do we go from here? Questions we’re considering:

Education and healthcare underpin civil society. With roots dating back centuries, how should these fundamental institutions evolve—quickly—to support a 21st century society that is diverse, distributed, and evermore digital?
There is innovation and experimentation everywhere—how do we mainstream “pilot” programs?
What is the public/private balance? How can private-sector innovation thrive within a lagging public policy framework?
What happens after CARES when the pandemic recedes and the situation is stabilized? What is our generation’s moonshot that provides for a healthy, educated society, such that the next “black swan” event does not bring us to our knees?

Discuss what is happening in institutions right now.

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David McIntyre, ENV SP
Institutions Market Leader

Energy

Oil and gas commodity prices are at record lows due to the ongoing issue of oversupply and lack of takeaway capacity from the various shale plays. As such, utilities will likely revisit their mixture of natural gas and renewable portfolios over the next 12 months.
Major Midstream Pipeline projects which have been financed are still moving forward; however, banks and lending institutions have been veering away from fossil fuels. The next few months may provide opportunities for changing this trajectory back toward clean burning fossil fuel forms of generation in some capacity.
Under the President’s recent CARES Act stimulus package, there was no direct relief for the renewable energy sector as delays to clean energy projects are likely to be expected due to COVID-19. These delays will be attributed to workforce shortages, supply chain impacts, and missing project deadlines in an effort to capture tax credit incentives currently in play.
No direct relief was provided under the Presidents recent CARES Act stimulus package to the oil industry as the price of oil plunges and supply is high, especially leaving small to mid-size producers experiencing severe impacts and a long road ahead. This scenario will also directly impact the renewable energy industry. As oil leaders continue to get hit hard, they are likely reluctant to invest in cleaner forms of energy generation and investments into smaller start-up clean tech firms.
U.S. oil producers are continuing to drastically cut back major capital spending efforts from what was projected for 2020. BP was one of the last to provide its cutbacks and has identified $12 billion, a 25% cutback.
U.S. Power Markets are still taking the stance that it is too early to determine if the COVID-19 crisis has been greater than previous impacts that the industry has been able to weather over the years and is projecting the ability to be resilient.

Where do we go from here? Questions we’re considering:

Given the low cost of oil, what are the negative impacts on renewable energies (e.g., offshore wind, solar)?
Will renewables be economically viable given the current low-cost alternative of oil?
What are the long-term impacts to climate and the environment from stalling renewable energy efforts?
Do clean tech firms have a fighting chance for start-up investments?
Will natural gas rise as a cost-effective form of energy generation?