COVID-19 lockdown will definitely alter our future, but only time will tell how and how much
It’s obvious to most everyone that significant changes are on the horizon for our entire economy and for society at large. Those changes can’t help but affect the commercial real estate market.
During this time of sheltering in place, we’ve already seen some significant developments. Medical professionals that provide more “elective” services – services not immediately necessary for the preservation of life – have seen their business fall off, dramatically. I talked to an ophthalmologist who told me that revenues for April were down 85 percent. His office is making 15 percent of what it normally takes in because emergency procedures are the only ones allowed.
The tourism and entertainment industry, the life-blood of the Tampa area and much of Florida at large, has sustained an even bigger hit as people have stopped flying and have less discretionary income. Retail has also declined amid social-distancing measures. And the same goes for office buildings: With such vast numbers staying out of their office spaces during the shutdown, people are wondering what’s in store for that market.
Occupancy standards are still another unknown. Will a facility containing 5,000 square feet be adequate to house its workforce while maintaining new norms of social distancing? Or will the company now have to lease 7,000 square feet instead? If so, this bites into the company’s bottom line because it now pays higher rent for the same number of employees.
So, what will the “new normal” look like once we reopen the economy? We don’t know yet for sure. But long-term effects are inevitable.
It’s not the first time in recent memory we’ve gone through massive change so suddenly. On Sept. 11, 2001, our way of life transformed dramatically in one 24-period. Anyone who flew regularly before that date knows just how different things were.
But we’ve adapted. We’re a resilient people.
It’s likely we’ll be looking at permanent changes in the way we’ve always done things. For example, it’s been commonplace to walk into a doctor’s office and sit down in a waiting room with 25 other people all in close proximity to one another. Will that be acceptable in the future? We don’t know yet. If not, we’ll devise new, innovative ways of doing things. Perhaps the open environments we have will give way to more private, individualized settings. Markets change to meet new demands.
I expect the multifamily market to spring back more quickly than many others. People still need places to live. Landlords will, undoubtedly, get more competitive in the years to come. Retaining existing tenants will be essential, so landlords will probably offer incentives for people to stay put. One piece of good news: Landlords I’ve contacted in the Tampa area have collected almost all rents with only a small number of tenants asking for assistance.
A lot of investors are probably wondering if they can expect some fantastic deals on real estate, the kind that were available after the 2009 financial crash. It’s all uncertain, but I think people will be holding onto their properties during this time, not unloading them at bargain prices. I suspect the deals out there will require a fairly large outlay of cash. With all the uncertainty across the country, lenders may not be so free with their money.
None of this is to suggest an austere time ahead of us. But right now, the future is admittedly murky – we simply don’t know how it’s going to all pan out. And despite the fact that we don’t like uncertainty, we still have to work within its confines.
So, let’s be smart and creative, devising strategies for operating within a new reality. We have to be ready for it. If you’d like to talk about some possible strategies, don’t hesitate to contact me.