What’s Next for Commercial Real Estate?

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As I sit here remotely - plucking away on my iPad - my thoughts drift toward what might be next for owners and occupants of commercial real estate - specifically, what might the “new normal” resemble. Can we take clues from past economic downturns? Certainly.

The dip in the early 1990s was initiated by a skirmish in the Middle East followed by a broad failure of the Savings and Loan industry - remember them? What followed was the removal of an entire lending source. During the late eighties - many occupants of commercial real estate financed their building purchases through a combination of an S & L first loan coupled with a seller second. Achieved was a 90% financing structure. Where the industry went awry centered around riskier ventures with S & L proprietors. A bucket called the RTC - resolution trust corporation - was filled with the tainted loans and wholesale liquidation of S & L assets began. Small Business Administration financing became the defacto source of acquisition money for small owner operators. SBA loans are still the “go-to” program today.

9.11.2001 reigned terror upon our society. Never had the United States of America weathered an invasion upon its mainland. 2977 souls perished in attacks upon the World Trade Center, the Pentagon and a foiled attempt on the White House. Our world came to a jolting halt as the dial tone of every day life disappeared. To protect us from a future barrage - a new government agency - Homeland Security - became a thing and boarding a commercial jetliner, attending a concert, enjoying an amusement park, or entering a federal building became a dance of disrobing and disarming.

Overcoming the carnage of the 2008 financial meltdown required all of us to pay off debt, stockpile cash, and live within our means - for a time. Banks were forced to consolidate, shore up balance sheets, and restore cash reserves. Lending policies became much stricter - borrowers had to prove they were credit worthy - imagine that!

The Covid 19 pandemic is so much different than previous resets. A healthy economy was placed into a self induced coma akin to a virus patient. Atrophy has certainly set in and none of know how the business climate will respond. Suffice it to say - it will be different. No kidding! What follows are my predictions on what may be coming.

Working Remotely. Yes it’s challenging to have a call with a screaming little one participating. Yes office culture is cratered. But guess what? We are all learning to be a bit more mindful and selective in the meetings we schedule and attend. Plus no time is wasted in freeway traffic. My bet is we will occupy fewer square feet of office space and more of our work will be from home.

Mass testing. For sure! This may be a pre-requisite to our governor loosening the reigns and allowing businesses to open. Look for a chip or sticker affixed to your driver’s license - much like a donor card - that proclaims your status.

Covid-19 free certifications. Without a doubt. There was even an Irvine, California startup willing to provide assurance a workplace was Covid free by conducting serology and/or PCR testing. I, for one, thought it was brilliant. For $200 per employee - the testing was to be conducted and workplaces given a clean bill. Unfortunately, they were “right to soon” and forced to shutter.

Distancing. Social distancing is probably with us until some sort of vaccine is discovered, tested, and readily available. What this could mean to collaborative working, bullpens, or other close contact office space arrangements is in question. Suffice it to say groups like We-Work and other co-working operations are going to feel the pinch. But what about manufacturing operations that employee dozens of people? Will the new normal include spacing among those plant workers? Will there be a requirement to have a certain amount of space between machinery, racking, raw materials, and finished goods,? My guess is yes. I also believe we will see a dramatic reshoring of some of our manufacturing of key components - used in autos, medical equipment, and injection molding.

Temperature testing. Already being done in China! Imagine not being allowed into a concert, baseball game, or amusement park without first passing a temperature test. I don’t believe this is that far-fetched. Rumor has it that some of the major amusement parks locally are already considering such a program.

GPS tracking of infected contact. If you doubt big brother. Doubt no more.

Facility disinfecting. Similar to a food manufacturing operation or a restaurant - I foresee offices, retail establishments, and manufacturing operations, requiring daily or numerous times daily a complete sanitization of the buildings, surfaces, and common areas.

Masks, gloves, and hand sanitizing. A given!

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.