Companies can no longer wait to see if tomorrow’s market will be vastly different from today. They must be proactive despite the challenges inherent in every market, which are being exacerbated and elevated by the global coronavirus pandemic. Savvy commercial real estate owners can and undoubtedly will significantly enhance their prospects by merely adopting a smarter and focused approach.
Between now and when our economic outlook and the real estate sector is brighter, company leaders should use this time to adopt new technology, advance viable opportunities, and making the health and safety of their employees’ and customers’ priorities. Those who take a wait and see approach could see profits evaporate. They could lose valuable assets, and their inactivity is likely to translate into lost market share, income, relevance, and credibility, especially in the post-COVID market.
Kidder Mathews’ Robert Thornburgh, SIOR, CCIM, says, “Companies who are innovative and thoughtfully plan for the future stand a much better chance of survival. The alternative is companies will fall behind at an unprecedented pace, simply by sitting idle in an uncertain environment.”
Companies must also take a long view of commercial real estate by understanding the market’s cyclical nature.
Kidder Mathews’ Skip Whitney advises investors to start looking at opportunities and where they want to be once the market recovers. For those with liquidity and opportunities in sight, now is an excellent time to step back into the market. Whitney’s advice is for buyers to be “selective” because there are many opportunities, but investors need to know what to look for, and their expectations need to be adjusted.”
Sellers aren’t going to give away their properties, he notes, even though the market is currently facing challenges, such as the pandemic, fires, and civic unrest. “The COVID-19 disruption was a forced health-related adjustment rather than an economic downturn,” notes Whitney. It has impacted some businesses’ bottom lines more so than others. The long-term impacts won’t be known for months or years down the road.
In the interim, Whitney points out savvy developers understand bringing a project to market typically takes years. Thus, experienced developers are looking at opportunities to reduce construction costs due to the slowdown at a time when contractors need work, and they can negotiate lower prices for materials. Developers know now is a good time to identify and tie up sites and get their projects approved, so they deliver timed to the next recovery cycle.
“Sophisticated investors who’ve experienced multiple markets before can read between the lines,” says Whitney. “And what they know is cycles are temporary. They know changes are coming, but companies will adapt and adjust to a new normal in a few years.”
In the meantime, the commercial real estate market must adjust to numerous impacts, notes Kidder Mathews’ Darrell Levonian. “The pandemic of 2020 has forced our debt and equity partnering to recoil and adjust for the new standards that will continue to evolve and become constrained in some sectors into the future,” says Levonian.
He points out the disruption this year “has challenged all of us to think about solutions for all asset classes that may be in trouble today. It is not a globally oriented solution for all assets in any one category across the spectrum. It’s about the submarket, the ownership, the debt, and the litany of other topics that must be embraced concerning any real estate asset in turmoil. In other words, ‘one size does not fit all.’”
But Thornburgh points out the solution will in significant part, likely embrace technology. The marriage of physical and digital technology has forever altered how CRE brokers and advisors interact with clients, he notes. That encompasses the services, the processes as well as client expectations. “The key to grasping how important technology has become,” says Thornburgh, “is understanding the rapid rate of change occurring around us. The insatiable need for vast amounts of information can be met with tools to rapidly aggregate data and interpret information to help guide smarter decisions.”
He says, “Technology is happening now, not ten years down the road. The younger professionals know more, and in the coming years, they will blow past commercial real estate professionals who don’t innovate. There’s a new client base coming, as well, which will make it tough to retain clients, who demand an advisor who gets technology too.”
“Big data must be baked into the CRE industry because clients demand it. Intimately knowing and understanding data is an inherent need for every real estate professional today,” notes Thornburgh. He points out brokers who excel at delivering data and market information will become indispensable.
Keeping pace with the latest technologies is a big way for a company to remain relevant and advance its market position. Thornburgh notes there are a host of Proptech tools and resources that can be deployed. It may involve incorporating smart building technology to create a more efficiently operated asset. In turn, that could elevate a building’s position in a market, attract more tenants, and drive higher leasing activity and rents.
Another way technology can improve the efficiency and effectiveness of CRE brokers is through the adoption of AI. Sales and leasing teams are wise to utilize available tools to conduct virtual tours for clients because it helps them and a property stand out against the competition. As property owners skew younger, they will likely be more tech-savvy, requiring a broker to match or exceed their tech prowess. By leveraging technology as well as data comps, a broker’s recommendations will come in stronger. Otherwise, they could lose out on deals and certainly will look antiquated compared to those who bring a strong technology aptitude to the table.
Commercial real estate professionals no longer use a Rolodex to keep in contact with clients. Today, sophisticated CRM’s tied to a mobile phone now are the backbone of a process that tilts toward a more digital experience to transact, yet still is anchored on building and managing personal relationships.
Thornburgh adds, “Technology hasn’t replaced the broker; it is simply making them more effective and capable of facilitating quicker client decisions. Today’s innovations make us better tomorrow.” Take, for instance, the use of faxes or certified mail that have given way to electronic document signatures today. The way properties are marketed now has also changed to a more digital process, especially as internet speeds have accelerated. That allows CRE teams to incorporate data, video, and content that can be quickly consumed in a virtual process that showcases a property to prospective buyers or tenants seeking space.
“The ability to assemble a rich suite of digital content and marketing materials allows us to tell a compelling story about an opportunity rapidly,” says Thornburgh. “That, in turn, lets us cast a larger presence for clients in the marketplace.”
Technology will continue to play a role in the post-COVID market. Almost overnight, Zoom became a household name as remote workers, teachers and companies jumped on the video platform. Beyond serving as a reminder of the value and essential role technology can play for companies, Zoom is a harbinger of what’s ahead if a company plans to remain a viable entity and relevant industry leader.
Property Level Changes
But for commercial real estate owners, investors, and developers to get past this period of disruption, they must start thinking ahead to a time when working from home and having businesses shut down is behind them. Landlords must make changes at the property level to accommodate how people want to interact and help their tenants feel comfortable.
Among the changes being presented include investments by landlords to modify an asset to cater to the new normal and accommodate social distancing guidelines, which may include adding touchless features, air filtration system improvements, or redesigning common areas to allow people to spread out easier.
Kidder Mathews’ Gary Baragona says, “COVID-19 has fundamentally changed the way employees work, and the way businesses operate. The pandemic fueled the need for the continued transformation of office space to better support social distancing, provide cleaner and more efficient workplace environments.” This holds for both tenants and owners as both need to be proactive participants in this transformation. “If proper modifications aren’t made, investors may risk losing existing tenants or may experience a drop in demand from potential tenants – translating into lower occupancy levels and lost revenue.”
Baragona notes as the pandemic unfolded, some tenants actively seeking space “either placed their requirements on hold or scaled back to re-evaluate their future space needs.” Companies are exploring various workplace strategies to cope with the current environment. “Additionally, many firms are looking at the feasibility of expanding into lower-cost markets with strong infrastructure, access to talent and solid growth opportunities.” Baragona points out that savvy investors began making key asset modifications earlier this year in anticipation of the eventual re-opening of the economy. However, owners who sat idle will be playing catch-up, likely resulting in lost opportunities.