Corona goes corporate: how the service sector faces a disease, as measured by the local friendly office park.

As the recovery from the economic ravages inflicted by COVID-19 lumbers haltingly forward, it’s obvious even to the unattuned that some industries are bouncing back more nimbly than others.  Having chronicled the malaise of retail numerous times, including well before anyone knew that coronavirus would define the year 2020, it’s obvious that the imposed lockdowns only exacerbated the problems of an industry that has clearly been ailing for most of the last decade.  Though most American malls reopened earlier in the summer, it’s hard to imagine that many of them look too vibrant at the moment.  I recently visited a mall in metro DC that by all measurements was performing reasonably well prior to the pandemic; as of late summer 2020 it looked about 40% vacant.  And the world’s airlines (another industry highly sensitive to economic downtowns) have also taken a hit, manifested through our cavernous major airports and the growing desperation of the big names to pack their flights to full occupancy, even against the better judgment of epidemiological experts.  They simply cannot operate at the occupancy levels expected for social distancing and run a profit, which is why many are appealing to the federal government for more relief—an ultimatum that, left unaddressed, will result in tens of thousands more layoffs.

Two industries that kept a lower profile amidst the economic hardship and social unease are both visible in the photo below, taken in mid July.

empty office park in Alexandria during COVID-19

On the left (foreground) is a hotel, and on the right (background) is an office building catering to consultancies and other white-collar business.  They are both part of an office park in Alexandria, Virginia, one of the primary cities in the expansive northern Virginia (NoVA) suburbs to Washington DC that hosts hundreds of buildings of similar scale and function.  Disparaging though it may seem, even the locals who grew up here would concede that NoVA is basically one office park after another.  This one, called Alexandria Tech Center, is comparatively small, featuring just ten buildings.

And notice that gaping expanse of parking lot.  Not exactly typical for 4:15pm on a weekday.  But this condition broadly reflects how the service and consulting industry responded to the COVID lockdowns: most of the jobs across all of these buildings can operate reasonably well through remote work, and therefore the entire office park hosts about one-tenth as many vehicles as it did during normal operations.  The office park is in hibernation.

But these conditions only apply to the buildings at Alexandria Tech Center generally hosting various service sector tenants.  Flanking the office park are two hotels.

The Springhill Suites—the building on the left in the original photo—doesn’t seem to be operating under a mere skeleton crew.  It almost feels abandoned: I failed to capture the full conditions, but the owners allowed the grass and landscaping to assume an unkempt appearance, which gave clear indication that not much was going on.  (Credit where credit is due: the owners wisely funded just enough groundskeeping to prevent the place from looking completely abandoned.)  Here’s a notice that reveals the strategy for Springhill Suites:

“Consolidation” and “sister” seem to be the functional keywords.  And yes, that other chain in the Marriott family is part of the same office park.  Zoom in a bit closer from the original parking lot photo…

…and it’s visible there in the distance: a Marriott Courtyard.  After a five-minute walk to the east, this sister hotel’s functionality becomes obvious.

Though hardly full, the parking lot at the Courtyard reveals clearly enough to justify operations.  As is typical of a functioning business, the signs out front state the parameters for promoting social distancing.

As a general rule, it wouldn’t make sense for a brand (Marriott in this case) to plant two locations in such close proximity.  Except, of course, that these are discrete submarkets within the broader hospitality industry: Courtyard is a mid-tier hotel catering to business travelers but capable of accommodating families, with ample desk space and free wifi.  Meanwhile, the Springhill Suites (the temporarily closed operation) offers slightly higher tier lodgings with full residential suites, including a living room space and a basic kitchen, allowing for more long-term stays where the guest might prepare some of his or her own food (but not quite long enough to fall into the “extended stay” category—a facsimile of a studio or one-bedroom apartment, under which Marriott International, Inc. uses the Residence Inn brand).

The consolidation of operations of these two hotels at this particular office park in Alexandria is hardly natural; guests cannot replicate the suite-like experience of a Springhill through the Courtyard typology.  However, faced with staggering declines in demand for hotels during the pandemic, the regional management no doubt determined that short-term business stays were more likely to elicit revenue than the kitchen-oriented, medium-term suites.  I have no doubt that these conditions forced the furlough of some workers among these two locations; most analyses from Smith Travel Research show hotel visits down over 50% from last this time last year, resulting in revenue losses of in the tens of billions.  I suspect my own experience of the pandemic in metro Washington DC has shielded me somewhat from the economic catastrophe; this is typically among the nation’s most economically resilient regions (and one of only two that did not experience a net decline in the labor force during the Great Recession).  But hotels, like most industries, have confronted both this completely unnatural drop in demand and a mounting skepticism toward the sanitation precautions that the hospitality industry takes.  Sure, hotels don’t usually force crowding the way one might expect at, say, a sports arena or a museum, but each hotel room offers bedding, furnishings, and restroom facilities that a complete stranger had used the night before.  This uncertainty toward the customary sanitization practices at hotels will inevitably cause a huge portion of a hotel’s consumer base to become risk averse, just as it forces the hotel management themselves to ramp up their cleaning game…at their expense.

Two months have passed since I took these photos, and, over the last few weeks, the Springhill Suites has reopened.  But the Alexandria Tech Center remains a shadow of its former self.  On those occasions when I have tried to notice after passing by, the parking lots consistently remain less than 20% full.  At least one building—catering to a for-profit college–remains completely vacant.  These two hotels undoubtedly cater significantly to the various business operations that take place in the other eight structures at Alexandria Tech Center, and with the daily visitations down for the rest of the office park, it’s hard to imagine either Marriott brand is remotely back to full operations.  But, like pruning a tree after a dangerously long or severe cold spell, this downscaled consolidation helped keep two hotels alive over the longer term.  And it showed why a vertically integrated company like Marriott International, Inc. can still retain the fundamentally healthy roots and trunk to an industry, while the outlying branches (that is, the smaller and independently operated facilities) absorb the worst ravages of the blizzard.  Given that we still have a potentially ruthless winter ahead of us, it may only be spring before we can tell which buds will re-emerge for the blossom.  Analogizing the life cycles of deciduous trees to an office park probably isn’t something the commercial real estate industry wants to hear, but the common thread between the two—fragility—is a reality that unprecedented disasters like these will force the business community to confront.

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2 thoughts on “Corona goes corporate: how the service sector faces a disease, as measured by the local friendly office park.

  1. AvatarDiana Leigh

    You will need to follow this area every few months and describe the changes as we slog through the pandemic in the winter. The business community must be having difficult discussions about their employees, office space, travel, meetings, etc. wondering if they will have a business “ community “ that has any resemblance to the pre-Covid business office.

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