While real assets have traditionally served institutional investors well during times of economic stress, the ramifications of the coronavirus pandemic are starting to take their toll in some places.

In commercial real estate, investors will likely re-evaluate their capital spending for 2020 in pockets like Edmonton and Calgary with the areas hit hard by the crash in oil prices after already suffering from low commodity prices for half a decade, according to a new report by TD Asset Management.

Meanwhile, stronger cities for real estate, like Vancouver, Toronto and Montreal, have seen positive trends in rental demand, especially from growing technology companies. Those trends will be put to the test as the virus continues to put significant pressure on the need for office space.

“The questions surrounding the future possibility of less densely occupied office floors and the permanency of remote working remain unanswered,” the report said. “Once employees are allowed to return to their offices, it is likely that staggered arrangements will be made to ensure minimal physical interaction. Companies have also been forced to adapt to technology that allows for at-home arrangements and, in turn, have realized their capability to do so.

“However, the benefits of working within an office setting suggests greater job satisfaction, collaboration and higher productivity. Moreover, millennials continue to be attracted to companies that are centrally located in urban centres, allowing them to adopt a work-live-play lifestyle. As a result, we still believe that the need for well-located and transit-oriented office buildings will be relevant going forward.”

The pandemic has also impacted retail real estate, with the exception of grocery-linked locations. However, Canada’s retail landscape has fewer square feet per capita than many other developed countries and current construction of new retail space is modest, suggesting issues of oversupply aren’t overhanging the asset class, said the report. “Nonetheless, retail landlords and tenants will face challenges in the short term. The ability for retailers to adapt and the continuation of government responses will be paramount during this unprecedented time.”

As for industrial real estate, the report noted demand in Canada has outstripped supply over the last few years, leading to healthy growth in rental rates for logistics, e-commerce and distribution tenants. While Canadians are buying less overall during the pandemic, what they are buying is primarily coming through online channels, bolstering the need for industrial space.

“Prior to the pandemic, non-perishable goods were the majority of orders, but we are now seeing increasing demand for perishable items. This is likely to increase storage requirements on industrial subtypes such as cold storage. As the volume for online orders increases, the expectation for faster delivery times will increase as well, demonstrating the value of industrial sites that are within proximity to its consumers.”