- Vaccine developments hold promise for stronger economic recovery next year, but the winter could prove to be a devastating time for many businesses
- Widespread business failures would impact commercial real estate as well as state and local government revenues
- Restaurants in particular face an uncertain future with the arrival of colder weather
With several promising COVID-19 vaccines in development, business owners are hopeful that a sense of normalcy will return to the global economy next year after the vaccines are widely distributed. Yet the intervening winter promises to be a difficult road for many companies that have already weathered severe losses in 2020.
In a recent article for the New York Times, Neil Irwin examines how interconnected sectors of the economy have been weakened during the COVID-19 pandemic and could lead to a cascading effect of problems. In particular, the widespread failure of hard-hit service industries could undercut commercial landlords as well as funding for state and local governments.
The food service industry in particular has been struggling during the pandemic, with diminished revenues due to limits or prohibitions on indoor dining, patrons’ fears of contracting the virus, and the loss of traditional visitors as offices transitioned to remote work. Many restaurants have run through their cash reserves and federal emergency assistance, face uncertainties in setting up outdoor dining during frigid weather, and are grappling with fixed costs.
With landlords unable to collect rent, an acceleration in business failures would make defaults on commercial real estate loans more likely. This trend has already emerged in some sectors, with an uptick in mortgage delinquencies on retail and lodging properties. The pandemic may also accelerate the closure of malls and shopping centers, with an interim period between when they shutter and when they can be converted to other purposes.
State and local tax revenue shortfalls are anticipated to be a problem that endures for several years, though the severity will vary from state to state. The question of whether a federal stimulus bill could offset some of these losses has been a contentious point in Congress, with Democrats generally favoring such an option and Republicans largely opposed.
