Market Outlook Construction Forum

Summary

as of August 21, 2020

Presenters o Richard Vermeulen, Lead Economist, Vermeulens o Meredith Bostwick-Lorenzo Eiroa, Managing Director, SOM

Market Outlook and COVID Timelines, Vermeulens Comparison to previous recessions of GDP impacts, monetary response, consumer price response COVID timeline comparison of flattening, containment, and contact tracing measures Employment impacts of COVID and work from home adjustments

Integrated Design Model – The Office in a COVID Ready World, Vermeulens

Optimizing savings and benefits in home and office space requirements Optimizing savings and benefits for work travel Estimate of long term total benefit impact to national economy

Recalibrating Higher Education, SOM

Value vs Vulnerability, an estimate of institutions likely to survive and thrive Funding stream and housing challenges New priorities for recruitment and cost, new models for instruction, curriculum, resources Shifting from instruction to activity, research, and small group based campus Open air campuses and outdoor learning, permeability and open movement Creativity for gap years and partnerships Finding the balance between digital and physical, utilization and right-sizing Campuses to endure through, community, connectedness, innovation, and progress

Future Agenda

Impact on K-12 Update from contractors

Macro to Micro – GDP

Macro to Micro – Fed Watch

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

0

1

2

3

4

5

6

7

8

NYSE

/ Un

empl

oym

ent

Rese

rve

Asse

ts /

EFFR

/ PC

E / G

DP

Reserve Assets [Trillions]

Effective Federal Funds Rate [%]

Unemployment Rate [%]

NYSE [relative scale]

Macro to Micro – Consume Price Inflation

Macro to Micro – Macro Flattening?

Macro to Micro – Herd Immunity?

Experience suggests that severely infected COVID-19 patients acquire antibodies immediately and during early recovery, but antibodies are much less common in only mildly ill or asymptomatic patients. This means they are likely not immune, and can't prevent the spread of the virus

Authorities predicted that 40% of the people in Stockholm would get the disease and develop protective antibodies by May. The actual prevalence, however, was around 15%

Aug. 11 in the Journal of the Royal Society of Medicine.

Afternoon all,

We are pleased to inform you that the COVID Alert app is now available for free from the Apple and Google Play app stores.

This new made-in-Ontario mobile privacy-first app, a joint initiative of the Governments of Ontario and Canada, lets you know quickly if you may have been exposed to COVID-19. You can then get tested, sooner, to help protect yourself and those around you.

COVID Alert also provides access to the most up-to-date public health advice and resources to anyone who receives a message that they may have been exposed to the virus, including recommended actions, such as: get tested, self-isolate, or monitor for symptoms. To protect the privacy of all users, the app does not share any details about the time, date, or place of any potential exposure; and does not collect or share any personal information, such as the name, phone number, permanent device identifiers, locations or testing status of any users.

By alerting more Ontarians faster of potential exposure to COVID-19 and providing direct access to public health resources, COVID Alert can help keep us safe and help reduce community spread.

While the app is voluntary, we encourage you to download and use the app to help protect yourself and your colleagues. Please promote and introduce this key tool to your colleagues, family, friends and neighbours. The more of us who use the app, the more effective it will be in helping to stop the spread.

COVID Alert marketing materials can be found on the following Google drive.

Macro to Micro – Contact Tracing

Macro to Micro – Containment Sawtooth?

Macro to Micro – Macro Flattening vs Micro Containment

Macro to Micro - Job Creation and Labor Force

01/31/0001/31/0002/01/0002/01/0002/01/0002/02/0002/02/0002/02/0002/03/0002/03/0002/04/0002/04/0002/04/0002/05/0002/05/0002/05/0002/06/0002/06/0002/06/0002/07/0002/07/0002/08/0002/08/0002/08/0002/09/0002/09/0002/09/0002/10/0002/10/0002/10/0002/11/0002/11/0002/12/0002/12/0002/12/00

90,00095,000100,000105,000110,000115,000120,000125,000130,000135,000140,000145,000150,000155,000160,000165,000

90,00095,000

100,000105,000110,000115,000120,000125,000130,000135,000140,000145,000150,000155,000160,000165,000

Wor

kers

(in

thou

sand

s)

Employment Labor Force

Macro to Micro – Work from Home

We see an incredible 42 percent of the U.S. labor force now working from home full-time. About another 33 percent are not working – a testament to the savage impact of the lockdown recession. And the remaining 26 percent – mostly essential service workers – are working on their business premises. So, by sheer numbers, the U.S. is a working-from-home economy. Almost twice as many employees are working from home as at work.More strikingly, if we consider the contribution to U.S. gross domestic product based on their earnings, this enlarged group of work-from-home employees now accounts for more than two-thirds of U.S. economic activity.

https://news.stanford.edu/2020/06/29/snapshot-new-working-home-economy/

Recalibrating Higher EducationThe Future of the Campus

Agenda

ObservationsEmerging IssuesKey Questions:What will become key issues?How might we leverage change?What should we do now?Discussion

As the pandemic swept across the US, colleges and universities began to shift their operations online to ensure the health of their students, faculty, and staff, substituting their physical campuses for a safer, virtual experience.

Institutions will have unique responses based oncontext.

Similar challenges, Different responses.

Driven byMission, Location, Resources

The impacts are not uniform across varied institutions.

Publics, Privates, Ivy Leagues, Small Colleges

“College presidents are basically in an impossible situation.” - Seton Hall University

“We can’t lose 20% of professors and continue to run the university.” – Texas A&M

“By the time a report is produced and a decision is made and announced, the situation has changed yet again.” – Cornell University

“We’re going to walk before we run.” – Bowdoin

“Virtual planning preserves as many options for as many students as possible.” - CSU

“We have a civic duty to the communities in which we live and work. By limiting the number of students and employees on campus, we will mitigate the potential exposure of many people to the virus.” – Smith College

“If you can live safely and study successfully at home, we encourage you to consider that option for the fall semester." - Michigan State University

“We said from the beginning that health and safety would be a priority. We know what our values are, we know what our mission is and we were committed to not closing our eyes to science.” – Rhodes College

“This combination of health concerns and restrictions will significantly diminish the educational value of the on-campus experience.” – Princeton University

”We have concluded that returning in person would pose unacceptable risks for you, our faculty and staff, and our neighbors in Baltimore – Johns Hopkins

SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG

+REDUCE COURSES TO LIMITDENSITY

SPLIT ONLINE & IN-PERSON TO LIMIT DENSITY

FIRST YEAR STUDENTS ON CAMPUSONLY

GRADUATES ON CAMPUS / UNDERGRADS ONLINE

PROJECT-BASED GAP-YEAROFF CAMPUS

3-4 WEEK COURSE / PIVOT ONLINE

LONGER MODULES / PIVOT ONLINE

+ LIVE ON CAMPUS / LEARNONLINE

IN-PERSON INTENSIVE / LEARN ONLINE

/THEN

SIMULTANEOUS ON CAMPUS ANDONLINE

BOTH FACE-TO-FACE AND ONLINE

Source: Inside Higher Ed

Staff

Space

Tools

Big Investments

Robust Campus OperationsHealth, Safety & Wellness TrainingContact TracingScheduling / UtilizationSpace ModificationsSignage & WayfindingBuilding SystemsTouchless DevicesTechnology for Hybrid InstructionCOVID TestingCleaning Supplies/PPE

As of August 17th, UNC Chapel Hill reversed plans for in-person classes after 130 students test positive for COVID-19

in the first week of classes on-campus.

Source: https://www.chronicle.com/article/heres-a-list-of-colleges-plans-for-reopening-in-the-fall/

Source: Professor Scott Galoway https://www.profgalloway.com/uss-university

The elite schools and those that offer strong value have an opportunity to

emerge stronger as they consolidate the market, double down on exclusivity,

and/or embrace big and small tech to increase the value via a decrease in cost

per student.

Schools that will see demand destruction and lower revenue, but will be fine, as they have the brand equity,

credential-to-cost ratio, and/or endowments to weather the storm.

High admit rates, high tuition, low endowments, dependence on

international students, and weaker brand equity.

Tier-2 schools with high admit rates, high tuition, or scant endowments.

Community

On-Campus

Tuition & Finance

Loss of Funding Streams

Sports EventsThird-Party Space RentalsConferencesParkingRoom & BoardMeal PlansSuspended State Funding (Publics)Tuition Refunds (Study-Abroad)Reduced Tuition (Online)Drop in Enrollments (International)

Source: https://www.insidehighered.com/blogs/higher-ed-gamma/what-lies-ahead-0

“Those institutions that will thrive will be those that can successfully identify their niche, effectively define and market their distinctive identity, and best balance the need to cut costs while providing the programs and services students want.”

– Steve Mintz, UT Austin

New Priorities

Recruitment, Yield, RetentionCost Cutting while Raising RevenueReturn to Campus ScenariosNew Models for Technology-Enabled Instructional DesignOptimized Curriculum & Resources

Source: Open Doors

“As partners in a 40-year arrangement, we believe … interests should be aligned, and that critical decisions that could impact housing fee revenue should be made with consideration of the long-term financial viability of the on-campus student housing project,” each letter says, before detailing debt the company took on for the different universities.

Source: https://www.insidehighered.com/news/2020/08/07/housing-developer-reminded-universities-about-project-debt-they-mulled-fall-plans

“The agreement cut the university’s (University System of Georgia) student-housing debt by almost $300 million, it said at the time, and had the company (Corvias) developing 3,683 new beds and managing 6,195 existing ones across nine different system institutions.”

Corvias is a privately owned company based in East Greenwich, R.I., that contracts with higher education institutions and the U.S. military as a housing developer and landlord.The company counts more than 100,000 beds and 48 million square feet of space under management at over 30 properties across the country. Its portfolio of college and university projects spans well over a dozen campuses mostly across the nation’s capital, South and Midwest.

MARKET STATEMENT

As we recalibrate the campus of the future, we must remember that:

40%Work40% of students nationwide work full-time.

57%No Support 57% of students nationwide live independently without support from parents or family.

42%Ethnicity42% of students nationwide are students of color.

46%First Generation 46% of students nationwide are first generation college students

Source: https://www.insidehighered.com/views/2020/08/17/higher-ed-responds-covid-it-should-focus-three-areas-ensure-quality-and-equity

As we think about recalibrating institutions, we must recenter our planning upon the primary mission and value proposition of an institution of higher learning …

The Education of a Student

As a measure of success, investment, and endurance

What spaces will become problematicin the return to campus?

SOCIAL DISTANCING WILL LIMIT ON-CAMPUS CAPACITY

Source: https://www.steelcase.com/postcovid-education/

DDe-Densification

Source: https://rwdi.com/assets/factsheets/RWDI-Insights-Thoughtful-Ventilation-design-to-address-COVID-19-risks.pdf

“The type of ventilation system plays an important role in preventing the transmission of COVID-19 and other pathogens that are transmitted through respiratory droplets”

WHAT IS THE VALUE OF THE CLASSROOM?

WHAT LEARNING SPACES HAVE BECOME OUTMODED?

HOW WILL THE SPACE OF THE CORRIDOR CHANGE?

WHICH SPACES ARE OUTMODED OR UNDERUTILIZED?

WHAT SHARED SPACES & DEVICES MAY BECOME OBSOLETE?

WHAT SPACES WILL REQUIRE MORE HYGENIC CONTROLS?

WHAT EXISTING BUILDING SYSTEMS ARE PROBLEMATIC?

HOW WILL WE NAVIGATE VERTICAL CAMPUSES?

“Just because Higher Ed has quickly shifted online in less than a month’s time, institutions must be careful not to pivot “the campus” online in a post-pandemic world…online cannot embody the full value of the campus, just as zoom cannot embody the full value and experience of learning.”

Elliot Felix, Brightspot

How might we leverage these disruptionsto shape the campus of the future?

WHAT IF ALL “INSTRUCTION” MOVED ONLINE ?

VIDEO CONFERENCING

PRERECORDED LECTURES / DEMOS

PODCASTSBLOGS / WIKIS

LINK-CURATED CONTENT LIVE POLLS / SURVEYS

PANDEMIC DESIGN RESPONSESKIDMORE, OWINGS & MERRILL 2020

WHAT IF CAMPUS WAS ACTIVITY-BASED, NOT INSTRUCTION-BASED?

BEYOND THE CLASSROOM

AND MORE SMALL GROUP LEARNING IS IN-PERSON ?

AND WE INTRODUCED STUDENTS TO RESEARCH EARLY?

WHAT IF WE INTENTIONALLY OPENED TO THE OUTSIDE?

HOW MIGHT WE LEVERAGE THE OPEN AIR CAMPUS ?

WHAT IF MORE LEARNING HAPPENED OUTDOORS?

HOW MIGHT WE ENCOURAGE PERMEABILITY IN NEW WAYS?

HOW MIGHT WE EXPAND CONSTRICTED MOVEMENT?

WHAT NEW WAYS WILL WE MANAGE LARGE CLASS CHANGES?

HOW WILL BIG TECH PARTNERSHIPS CHANGE THE SPACE OF THE CAMPUS?

WHAT NEW PLACES WILL ENABLE WORKING TOGETHER IN NEW WAYS?

Imagine the Future of Campus30 years from now…

What will the anchors be?

How will it be different from the existing campus?

What will fade with time?

What will be timeless?

Who will our partners be?

What is the right balance of physical vs digital?

Source: https://www.insidehighered.com/views/2020/04/28/how-pandemic-might-create-better-educational-opportunities-opinion

“The pandemic is revealing how education today is wasteful. It has too many people and too much superfluous real estate.”

– Paul Hanstedt, Inside Higher Ed

ONLY 10 PERCENT OF REAL ESTATE IS CLASSROOMS

MARKET OUTLOOK

State of Facilities* - 2%EnrollmentSince 2007, higher education enrollment trends show that the percentage of baccalaureate students has fallen by 2%

8.5%Campus Footprint Since 2007, campus footprints have increased by 8.5%

+ 6%EnrollmentMaster’s program enrollment is 6% higher than it was in 2007, the number of grad students has steadily declined since 2012

19%Campus Footprint The Campus footprint of physical spaces on these campuses has skyrocketed 19%.

The COVID-19 pandemic is worsening an ever-deepening disconnect between the continual decline in college enrollment and rise in campus footprints, putting many institutions at risk and complicating facilities management strategies.

Gordian predicts that the college enrollment decline will continue for at least a decade.

Source: *7th addition of the state of facilities by Gordian, a company that provides facility and construction cost data, software and services

The Aging Campus Assessment

Aging facilities will drive up costs

Reductions in enrollment and revenue will make it harder to make necessary facilities investments

Facilities deficiencies will make it harder to compete

Source: https://www.gordian.com/uploads/2020/04/V8_2020-State-of-Facilities-Report.pdf

HOW CAN WE LEVERAGE AN EMPTY CAMPUS ?

1. Build no net additional square feet2. Upgrade the best; get rid of the rest3. Manage space and time; re-think capacity4. Right-size the whole5. Take sustainable action6. Make campus matter

Source: https://campusmatters.net/to-build-or-not-to-build/

MARKET OUTLOOK

Principles to Guide Planning (2013)

MARKET OUTLOOK

Identifying Risks & Modelling Scenarios

“Much remains uncertain.

The behavior of COVID-19 and progress toward a vaccine will largely drive student and institution decisions that could have longer-term impacts.

A clearer understanding of risks—and the options to mitigate them—will provide institutional decision makers with the information they need to best serve the interests of students, faculty, and staff.”

“Colleges and universities should start developing scenarios now to identify and quantify the financial and operational risks they face and use these scenarios to model the impact on their strategic and capital spending plans.”

Moving Courses Online

• Create Learning Modules

• Align with the Institutions Technology Stack

• Consider Learning Outcomes

• Offer Guidance for Online Options

Operations

• Identifying Essential On-Campus Activities

• Assessment of Physical Campus Footprint

Student Support & Services

• Enrollment - Admissions

• Study Abroad Cancellations Impacts

• Retention

Source: hhttps://www.kaufmanhall.com/ideas-resources/article/coronavirus-campus-strategic-and-financial-considerations-short-and-long

Source: McKinsey

Bridge to the Future

Setup an Institutional “Nerve Center” to plan and manage COVID response

Near-Term Planning• Student Success Online• Financial Resilience• Support of Faculty & Staff

Mid-Term Planning• Focus on Enrollment • Developing Campus Operations SOPs: Health, Safety & Wellness• Resilience Planning: Online Capabilities & IT Infrastructure Upgrades• Pedagogical Innovation: Embracing Online Learning • “Return to Campus” Scenario Planning

The campus of the future must embrace all forms of connectedness and community - creating exchanges (physical and virtual).

Today we must shift the narrative from an institutional legacy to a living philosophy of innovation and progress.

Campuses are not only a collection of experiences, but places where the sparks of discovery, innovation, and going beyond the former possible happen - together. This is why the campus experience must endure.

Discussion

Macro to Micro – Ecology Wellness Economy in a Covid Ready World

Green at No CostIntegrated Design

Macro to Micro – Green Infrastructure Access and Mobility

Macro to Micro – Covid Ready Transportation

Macro to Micro – 19th and 21st Century Networks

Macro to Micro – Planning Framework Adaptability

Macro to Micro – Live Work Mixed Use

Macro to Micro – Cost Models and Integrated Design

Macro to Micro – Mission Vision Values

Green InfrastructureAccess AbilityMacro MobilityRight Size BuildingSprawl On

Macro to Micro – Work and Work Travel Post COVID?

- Work from home increases 1 day per week globally- Work from home increases 2 days per week for workers in

central business districts- Office space shrinks 25% globally due to hoteling- Rush hours distribute across 7 to 7 spectrum for central

business districts- Offices become poly nuclear 20% utilizing share space- Intercity business travel decreases 20%- Interstate business travel decreases 30%- Home delivery increases 25%- Pre-order and pickup increases 25%- Mass transit funding collapses- Rideshare shifts to trusted networks- Mass gatherings become segmented

Macro to Micro – Work and Work Travel Post COVID?

Work from home increases to 2.5 days per week globallyOffice space 30$/sf x 200sf/worker = $6,000 per office worker per yearHome space 10$/sf x 100sf/worker = $1,000 per home worker per year60M x .5 workers x $5k savings = 150B per year

Work travel decreases 2.5 hours per week globallyTravel time value 30$/hour x 2.5days x 40weeks = $3,000 per office worker per year60M workers x $3k savings = 180B per year

Work from home total benefit150B office + 180B travel = 330B per year330B / 20T GDP = 1.65% x 2 hedonics? = 3.3%