Friday, August 21, 2020

Pandemic Winners and Losers - Update

Image Attribution: www.vecteezy.com
Early in the lockdown I penned a column entitled Corona Virus - Winners and Losers. The column Registered in this space on April 5, 2020. As the journey began, we knew some economic passengers were not going to survive, others would thrive, and still others would feel little - if any effects. Sound familiar? Akin to the way in which the novel Corona virus takes residence in our bodies - some die, others are asymptomatic and still others experience mild to moderate effects - this pandemic has chosen its economic winners and losers as well.

We have now been stuck in first gear for five months! A ray of economic hope glimmered in early June as businesses were allowed to rev and reopen - only to be stalled again in July. Different than previous recessions - this one was self inflicted. After all, that is government’s job, right? To keep us safe. But, even at the expense of our livelihoods? You could make a case that the recessions of 1990-1992 and 2008-2010 were also caused by an overreaching intervention. Savings and Loan implosion in the early 1990s stemmed from a deregulation. In 2006 and 2007, an easing of loan requirements led to a housing value bubble. Lancing of said bubble in 2008 caused the pain! But I digress.

So, five months into our stay at home order - with no end in sight - which industries have thrived, failed to survive, or stayed relatively constant? As every business has one thing in common - it’s home - AKA a suite of offices, a manufacturing plant, or a retail storefront - there is relevance to commercial real estate.

The thrivers. Clearly any business that caters to a “work from home” population has seen a huge uptick in revenue. ZOOM!, companies that make routers, internet service providers, Google classroom, DropBox, Dell PCs, Apple, Microsoft all have experienced a pop. Personal protective equipment - PPE - in the form of masks, gloves, gowns, face shields, and their manufacturing operations. Boom! Residential real estate has benefitted from depression era interest rates coupled with record levels of available houses. Doubt what I say? Ask our friend Leslie Eskildsen if she’s busy. Logistics providers that supply Costco, Target, Walmart, Home Depot, Petco, and Amazon are slammed. What about items such as forklifts, racking, conveyor systems, dock and door equipment? These are essential to support the business of shipping things to home bound customers. Finally, home improvement contractors and DIY stores are having record years. Folks are at home. Might as well remodel that master bath which still has checkerboard tile. Ugh! Commercial real estate housing the thrivers has largely been unaffected. Sure. There are those occupants who believe they should derive a pandemic discount but owners are reluctant. We’ve not seen a spike in vacancy of manufacturing or logistics buildings.

R.I.P. Unfortunately, bar and restaurant enterprises face a dismal future - especially those eateries that rely upon an upscale, sit-down, white table cloth experience. Do you really want to spend $80 on a steak and sit under a tent in the parking lot? Hmmm. Maybe just pitch one in your newly remodeled back yard and fire up the BBQ. Movie theaters. This one baffles me. Seems as though with the advent of seat reservation apps - distancing could be afforded. Theaters could be sanitized between features, and concessions monitored. Oh well. Stream away! Regional Malls? Toast. Companies relying upon conventions, sporting events, concerts, county fairs, amusement parks, or gambling? Crickets! What about travel? Not just airlines but cruise ships, hotels, and rental cars? Finally, business apparel. I’ve not donned a dress shirt in several weeks. Our dry cleaner senses that. Brooks Bothers, Jos A. Bank, Ann Taylor, and Neiman Marcus are in various stages of atrophy. We’ve already witnessed carnage with retail sites - especially those mentioned. Office space is a bit slower to respond. Suffice it to say - the way in which companies operate and consume office space will change. Medical offices will occupy more. Those who can benefit from a virtual workforce - fewer square feet.

Business as usual. Drive through food outlets and restaurants that responded early to take-out are maintaining - albeit maybe not at pre-virus heights. Most contractors - HVAC, plumbing, roofing, flooring have experienced a steady flow of biz. See above. Manufacturers have generally not seen a huge dip - especially those who manufacture a consumable - paper, plastic, packaging, auto parts, tires, food. I wonder how long this will last?

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.

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