Silver Lining: Where The Commercial Real Estate Industry Sees Opportunity From COVID-19 Outbreak
The COVID-19 outbreak and widespread response to slow its spread has thrown cold water on what had been a healthy U.S. economy. Nearly all sectors, including real estate, has seen immediate impacts.
Even so, those in the Milwaukee-area commercial real estate industry see a number of opportunities coming as a result of the pandemic. Opportunities will come in the form of buying opportunities, a healthy industrial sector through growth in e-commerce and repatriation of supply chains, remote-work related investments and more lease and expansion opportunities due to newly vacated space.
These musings from local real-estate professionals were compiled in a recent survey conducted by six area industry groups: Marquette University Center for Real Estate, NAIOP Wisconsin, the Commercial Association of Realtors Wisconsin, Wisconsin CREW, Building Owners & Managers Association of Wisconsin and IREM Milwaukee. The survey asked respondents what impacts they were seeing from the outbreak and what strategies they were using to address them. It generated nearly 350 responses. The full results were released last week.
One of the most commonly mentioned things is the rise of buying opportunities, due to variables including low interest rates, distressed assets, foreclosures, increasing supply and lower property values.
As one respondent noted, opportunity could lie in “potential distressed sellers looking to recapitalize or sell at a discount to replacement cost and prior value.”
Respondents also noted two opportunities in the realm of industrial real estate. Some predicted accelerated growth in the e-commerce sector as more people become comfortable with using home-delivery services. Others noted that supply chains could be re-focused domestically, as the outbreak caused global disruptions. The thought is that the industry would be better equipped to handle a similar pandemic in the future if more operations were located in the U.S.
“Manufacturing growth in U.S. as more companies repatriate their supply chains,” wrote one respondent.
They also noted several opportunities in the retail sector. More space will be made available due to businesses closing, which will create opportunities for tenants to relocate or expand. Landlords will also settle for lower rental rates as they look to make deals with replacement tenants.
This all could be viewed as a silver lining, since retail has been hit particularly hard due to state and local shutdown orders.
” … I believe some businesses will not be able to reopen or will fail, that more retail space will become available, and that asking rents will come down as landlords look to do deals with good replacement tenants,” said a respondent.
Builders noted opportunities to do more renovation work on buildings that are now vacant or have limited occupancy. They also predicted more demand coming from the health care sector, with users looking to upgrade facilities. On the other hand, a number of respondents suggested the rise in virtual health care could also harm their business due to less need for services at brick-and-mortar locations.
Many respondents pointed out that many companies have had to quickly adapt to remote work. This would have long-term impacts on the way people work, they said.
Things traditionally done in-person that are now being done virtually include team meetings, property showings and remote notarization.
Several even suggested this would lead to changes in the office market, such as the reduction of needed office space.
This particular point caught the attention of Andrew Hunt, director of the Marquette University Center for Real Estate, one of the groups involved in the survey.
He said respondents were surprised how easily and quickly their firms adjusted to remote-work tools such as Zoom and Microsoft Teams. Many of them wondered how this would change the way people work, both inside and away from the office, even after the outbreak subsides.
“I think what they’re trying to say is, ‘We know that there’s a way people work, we think it is probably likely to change from this,’” Hunt said in a recent interview.
He later added, “How that impacts office space in the future, how that impacts just the way people do work and maybe even how efficient they are in doing work, is something that we all need to continue to watch. But a lot of people think that is going to have an impact.”
Other takeaways from the survey include:
- A majority of respondents predict the COVID-19 outbreak will seriously impact their business for six months or less, though those expectations vary when considering specific professions and level of industry experience.
- Most respondents also expect at least a portion of tenants to seek rent reduction as a result of the outbreak and are likewise employing a number of strategies to work through this issue.
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