Delta Spike Brings Bumps For Business Travel And Big Implications For CRE
With a new variant to contend with, and different attitudes across the board, working out the way forward when it comes to face-to-face meetings and traveling to see clients or colleagues is a tough job right now.
CBRE Senior Vice President of Capital Markets and Investment Properties Karly Iacono said divining current meeting etiquette has become a new challenge. The same client might have been comfortable with meeting in their office a month ago, and now, within a few weeks, might be asking visitors to bring a vaccine card or questioning whether it’s OK to meet in person at all.
“It’s the nature of where we are, things are in flux,” she said. And that has a big impact on business travel, in-person meetings with clients and networking events.
The surge in the delta variant has recently put the brakes on a re-emergence of business travel and networking events. On Aug. 1, the Transportation Security Administration reported that 2.24 million travelers went through airport security, a post-Covid high point.
But the recent and rapid spread of the variant has altered the trajectory of Iacono’s team and their work as well as business travel across commercial real estate, where networking and personal relationships take on outside importance, even relative to other industries.
“We spent the last year and a half using every social media and digital platform we could, but there’s still the need for that human element,” Iacono said.
For the commercial real estate industry, the fortunes and frequency of business travel have multiple layers of meaning: impact on the value and demand for many types of downtown commercial real estate, as well as an impact on how CRE firms and staff do business.
Some have slowed down on travel, even through a summer that started to look more like normal. For Iacono and her brokers, a decline in travel comes down to a lack of events to attend; there’s no lack in her ability to travel.
Meghna Krishna Bondili, who founded the communications firm Butterfly Voyage, which specializes in real estate, plans to fly from her Nashville home to Chicago to do a site visit for part of a large redevelopment in the Bronzeville neighborhood. Though she’s worked on the project for more than a year, this will be her first time meeting team members in person, and she “absolutely” would have traveled more without the coronavirus pandemic.
“Proceeding with caution is the new normal with real estate,” she said. “Even for other clients, it was normal to go to a city and sit down with a client for a day. That’s been upended.”
Others have slowly seen more of a return to normalcy. Over the last couple of months, especially early this summer, Janet Woods, vice chairman and Northeast region lead for Savills, has seen “more of a calm on our team", and a “back to business almost as usual” scenario taking hold as Covid cases declined and vaccinations increased. She took a number of trips along the East Coast earlier this summer as business travel began to ramp up, and international executives plan to meet in person in the U.S. this September.
“We’re at a time now where we want to see growth again, and support that growth and support our brokers and team to get back to more normal,” Woods said. “There has been an acceptance level emerging that had not been there previously. And we’re getting comfortable with the uncomfortable, but as protective and cautious as we can be.”
Trends in CRE travel mirror those across the country and other industries, which saw a cautious resumption and recent stall amid delta worries.
“Delta is slowing recovery absolutely,” said President and CEO of Partnership for New York City Kathryn Wylde. “That has an overall impact on the economy and business travel, it’ll be slower to ramp up.”
Wylde said major employers think business travel will be permanently reduced — some estimates suggest as much as 50% — which has serious implications for major commercial centers and the hotel and restaurant industry. Last year, business travel took a significant hit, according to U.S. Travel Association Executive Vice President of Public Affairs and Policy Tori Emerson Barnes. This segment of the travel industry accounted for 500 million trips and $306B in spending in 2019, and despite making up just 20% of total trip volume, accounted for an estimated 40% to 60% of revenue. That plummeted 69% in 2020, and it has slowly been inching back this year (leisure travel has led this year’s travel rebound).
Barnes said the industry was looking at recovering 2019 levels of travel and spending by 2024 or 2025, based on surveys this summer, and bookings peaked in July.
“As an industry, we don’t want to backslide,” Barnes said.
She believes the next few weeks are going to be crucial. Domestic peaks in statewide caseloads due to delta, the impact this recent surge has on schoolchildren, and whether or not the surge peaks and falls more quickly, as it did in the UK and India, may shape the business travel landscape for the rest of the year. The organization’s Let’s Meet There campaign is focused on persuading elected officials and C-suite execs that with the proper safety protocols in place, business travel can happen safely, and the chance of being infected on airplanes is “very, very low.”
Delta has already had significant impacts on travel, with many festivals and events across the country either canceled or postponed. But the surge’s impact on business travel is still coming into focus. A survey by Concur, a business expenses software system, conducted with 3,850 business travelers last month found that 96% were willing to travel for work (and 80% felt that without increasing business travel their professional lives would suffer).
Another survey by management consulting firm OliverWyman released July 29 found that 75% of business travelers expect to travel the same or more than they did pre-pandemic, and predicted a slight spike in "catch-up" booking over the next few months. It remains to be seen if this optimism survives an accelerated surge, or if any decrease is potentially less severe due to a desire to return to some kind of new normal.
“What I’m seeing is those who rely on the face-to-face to make a living are traveling again, brokers and capital raisers, they’re out there getting in front of clients and doing it again,” Denver-based Stablewood Properties Head of Real Estate Investments Spencer Burton said. “We’ve met with brokers in person as vaccines have increased and comfort levels have increased.”
Burton estimated that if he was traveling, say, 100 times a year pre-Covid, he’s traveling about 30 times a year now, and will likely be up to 50 times a year post-pandemic. Stablewood has invested in tech and altered its operations and reduced nonessential travel; instead of flying between markets, they have contacts in every city where they invest, ready to scout potential properties.
Bondili has seen similar shifts in how different clients, and CRE firms, are operating. Collaboration is a bigger trend, especially globally, as investors in one country need to figure out how to conduct site visits and analyze property in another.
“What hasn’t changed is the need to go and see the asset,” she said. “Inherently, real estate is still a very human product.”
It may be the best indication of the forward momentum of the moment; despite the increased risks of delta and the fear of a bumpy road ahead, the market has become more active, and CRE staff have followed suit.
“We’re all doing business differently than we were before, but the market is as strong as it's been,” Burton said. “You wouldn’t expect that with all this uncertainty and constrained travel. It’s a bit confusing."