Will Commercial Real Estate Change Forever?

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Social distancing, shelter in place, “Coronacation”, learning from a distance - phases now rooted in our lexicon which weren’t used just one month ago. My how things have changed - and how quickly! My column from March 1 - in this space - recapped an event I attended the week prior. Hosted by Northwest Mutual - the gathering focused upon ways to keep more of your businesses profit. Also reviewed were the five causes of a bear market - one of which was recession. I cautiously opined that I wasn’t predicting a recession - even though the disruptions to our supply chains were forming as China suffered the impact of a workforce largely bridled. Why run around like Chicken Little? After all, the job creation numbers in February were remarkable. Man was I wrong! Often stated - you see the big things coming, it’s the little things that get you! Little indeed - microscopic in fact.

As our local economy is in virtual lockdown and the raging tsunami of disruption roils our psyche - will commercial real estate, and it’s owners and occupants change? Maybe forever? In a word, yes! Indulge me while I recap a few.

Office space. Although we are open for business - our physical location at 1004 W. Taft in Orange is closed to the public. Agents can come and go as they please - being mindful of the governor’s guidelines - but are encouraged to work remotely. Staff members are home bound with an internet connection to projects that need attention. For the first time in our office’s 37 year history - we are completely virtual. We own our building with a partner who services auto loans. Roughly 85 employees - in both companies - reside in the 21,700 square foot, two story structure. Per agent - we pay approximately $731 per month in rent - albeit to ourselves. Is space overhead necessary? Certainly for some companies. However, I’m certain many others will do the same math and ask the same questions.

Retail establishments. Wow! Traditional retail was in a world of hurt before the pandemic. Now? Pure carnage. Many stores - straddling the ledge of viability - just got shoved into the abyss. Few will return. Sure. The biggies - Walmart, Target, Costco, Home Depot - will rebound with a vengeance. But Amazon and other on-line portals will consume what retail business is left. Some restaurants will decide on-line and takeout is more profitable and adjust with smaller spaces. What will be left is a landscape of empty storefronts. Investors who rely upon rent from these tenants to service their debt and fuel their lifestyles? They just got a pay cut.

Automation. Hmmm. I don’t believe a conveyor system ever called in sick, filed a worker’s comp claim, sued an employer, or showed up late to work after a crazy weekend. My prediction is manufacturers and logistics providers - once they navigate the mine field of business interruption - will restructure accordingly. Less reliance upon employees and more automation. Akin to lack of preparedness in advance of a big shaker - local employers were not geared for this level of disruption.

Technology. I’m penning this from an iPad on our living room sofa. Many of you are reading this column on line from your breakfast rooms. Wednesday my strategic business coach - The Massimo Group - hosted a webinar entitled “how to be a lighthouse in a storm”. Yesterday, three strategic partners and I joined a Zoom call to discuss their worlds and some suggestions on servicing our client’s uncertainty. Sure. This is not new technology but the ways in which we used it was innovative. Look for expansion in internet bandwidth, mobile solutions, and other advances in technology. Tele-diagnosis’s?

Public gatherings. 9.11 changed security protocol forever. Remember when you could show up to the gate as your flight was revving to taxi? I do! Or walk into a courthouse through a doorway and not under a metal detector. Emptying your pockets of wallet, phone, keys and stripping belt buckles was never required at amusement parks or sporting events until the past few years. Will we now have our temps checked when we enter the Honda center? Sorry sir. You’re running a bit hot - we cannot let you in. Will networking events - chambers of commerce, Provisors, BNI - now be held virtually? How about city council meetings? No public discourse? Well, maybe that’s positive. Pro games without fans? Return of the drive-through theatre? Wedding venues, country clubs, convention halls. Preposterous? Maybe. Maybe not. Think airline security now vs 2000. A lot has changed in twenty short years.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.