Coronavirus

As we move beyond the initial shock and awe of the Coronavirus crisis, we in the commercial real estate industry begin considering “Now What?”

The pace of change in our business was moving at lightning speed even before the pandemic, with shifts in consumer and workplace behaviors, integration of technology, changing demographics. The pandemic only served to accelerate those changes to warp speed.

What will those impacts be? While none of us know exactly the long-term effects of this unprecedented situation (my crystal ball is still a bit foggy), those able to adjust and respond to the new landscape will find opportunities.

So, here are some of my observations as I sit here contemplating what’s to come.

Retail

• Open-air shopping centers primarily anchored by essential retailers like grocery, pharmacy and dollar stores are the winners and emerging stronger than ever. Enclosed malls, particularly B and C class with department store anchors, have seen an acceleration of their struggles.
• Online shopping surged during the pandemic and is still going strong, triggering increased behavioral trends such as BOPIS (buy online, pick-up in-store), curbside pick-up and delivery options—a direction we were headed in before.
• We will see an equilibrium point in e-commerce, and successful retailers will figure out how to marry online sales with storefronts and fulfillment centers. Those retailers that can successfully integrate online and brick and mortar will be the winners.
• Retailers will accelerate the depth and breadth of data mining of their customer base to drive more business into physical stores and improve upon convenience factors and delivery options.
• Creative restaurant operators will continue to find ways to expand take-out and delivery through innovative marketing, such as partnering with community associations for delivery options/pick-up stations within individual neighborhoods.
• Food kitchens offering delivery of various selections of meal options, like Asian, Italian, burgers, and salads all under one roof, will become increasingly more popular.

Supply chain and logistics

• Already one of the fastest-growing sectors before COVID was the distribution and logistics property type. Retailers, as well as many companies that depend upon the import of goods, saw a disruption in their supply chains during the pandemic, creating months-long backlogs of soft goods (remember toilet paper!), clothing, appliances, medical supplies (PPEs!), and even outdoor/sports equipment (bikes!).
• Businesses are going to diversify and expand their sourcing of goods and supplies, so as not to be dependent on one primary source, decreasing their risks of future interruption.
• The bright side is that we expect increased demand for manufacturing, storage and distribution facilities in the U.S., presenting more opportunities for development, as well as backfilling large blocks of space. This continuing trend bodes especially well here in the Gulf South region, where we have excellent logistical infrastructure in place, such as ports, air, rail and interstate systems.

Office

• The workplace landscape was already evolving pre-COVID; now, we see new, different twists on those existing trends.
• All companies will be pressed to reevaluate their long-term office needs and contemplate space decisions, with the health and safety of employees being paramount.
• Some permanent changes we can expect to continue in the office environment are distancing requirements, enhanced sanitation, reduced touchpoints, incorporation of more outdoor spaces, increased use of technology in place of meetings, and the adoption of more hybrid work environments balancing remote and in-office personnel.
• One winner in the office real estate sector will be the low-rise or garden office park setting, which will allow companies to control their environment, design safe floor plans and office layout for employees, and avoid dense, high-rise settings with crowded elevators.
• Some companies will be willing to pay more to get what they want, spurring an increase in demand for certain office types and opportunities for adaptive reuse and conversion of old retail space into office.

Investments

• Market turmoil usually creates opportunities to buy and sell. Those creative people who can sort through the challenges and prospects will be successful.
• Investor and property owners need to understand what will come out on the other side of this as more troubled, distressed and foreclosed properties inevitably hit the market—and more so, how do we value them? More thought will need to be given to analyze the risks and opportunities accurately.
• At Stirling Properties, we have begun working with local lenders to help strategize solutions for potential problems that continue to grow as loans rollover, values decrease and properties default.

The COVID-19 crisis has undoubtedly changed the commercial real estate industry and our businesses. Still, those who can adapt and evolve will be successful, especially if they have the right people in place to effectively see and execute.

Here at Stirling Properties, our team of skilled, experienced, professional advisors is well poised to assist our clients and investors in wading through these murky waters.

My crystal ball can’t precisely predict what will happen next. However, as it relates to Stirling Properties’ ability to weather this storm through our diversity, expansion of services for our clients, and extraordinary talent, the future is pretty clear.