Many of our clients and friends are asking about the impact of COVID-19 on our hometown small businesses and its overall effect on our local economic development. Two of our commercial real estate agents tackled the big questions. Jim Davis and Steve Dozier of NAI Beverly-Hanks provided educated insight about what we’re seeing now and what we can expect in the future.
How is COVID-19 impacting local businesses?
COVID-19 has impacted nearly every commercial entity in at least a minor way. For the first time in our lives, we have seen the majority of businesses come to a grinding halt from forced closures in the interest of public safety. The quick onslaught of the virus gave businesses very little time to plan and prepare for how they may best weather this storm.
Retailers and food services have been hit the hardest. Most non-essential retailers have completely shut down. Restaurants have faced the tough decision of choosing between restructuring their business model around carryout and a limited staff or shutting down operations entirely and letting go of their staff.
Locally, many businesses have had to close their doors, and, frankly, a good number of these businesses may not survive.
How long will it take small businesses to recover?
This is a question none of us can answer just yet. The length and process of the economy’s recovery from COVID-19 depends on many factors, all out of our control. One thing is certain: we will recover and inevitably find ourselves in a bull market again. We have lived through these cycles in the past, and, however difficult or unique this situation may be, this too shall pass.
It’s clear some industries will fare better than others. One positive is that the pandemic has clearly shown the demand for continuous improvement within supply chain logistics. Once again, we were reminded of the importance of the transport industry, the growing need for warehouse operations, and a conscientious feeder warehouse network to shorten delivery times and keep store shelves stocked.
Multifamily is another sector that has a history of withstanding economic downturns. Vacancy was low before the shutdown, and vacancy will remain low after the fact.
Retail and food service are the sectors with the most uncertainty. If a business was struggling prior to the pandemic, it will be difficult for them to hang on through the shutdown and recovery period. When restrictions are reduced or lifted, there will almost certainly be a period in which consumers are cautious about where, how often, and for what purpose they are willing to go back into crowds. It will be a period of wait-and-see—cabin fever versus the new fear of social interactions.
Are tenants and landlords, for the most part, working together with rent adjustments?
We should all be working together to help one another reach the other side of this situation with minimal impact.
There have been many cases of landlords offering assistance to tenants without the tenant even requesting it. These situations have ensured the tenant is able to stay in place and continue to lease. And they have strengthened the tenant-landlord relationship, which will likely benefit the landlord through lease renewals.
Unfortunately, there have also been cases of discord and lack of compromise. Tenants who truly need a helping hand because their business has been significantly impacted are met with landlords unable or unwilling to help. Landlords may rely on that income for their monthly needs or as stipulated by their banks, or they simply cannot afford the lack of otherwise promised income.
It is important for landlords and tenants not to give up. Make sure to research all options for assistance. There is another round of funding for small businesses coming through the CARES Act. Commercial lenders are offering forbearance on loans. And there are many other assistance programs. Through all of this, research is key. Do not be afraid to take advantage of these assistance programs until the recovery is in full effect.
Will COVID-19 impact interest in office space moving forward, with so many people working from home successfully?
Without a doubt, this will have long-term effects. But we will have to wait to see the degree of impact. Some businesses may have a short period of continued remote work before a return to normalcy, perhaps only out of habit.
It is obvious that business owners who are paying substantial lease rates for office space will note how quickly their business and staff adapted to efficiently working remotely. They may come out of this situation with the burning question, “Do I really need all of this space?”
Many working in the office world have also seen the value of daily face-to-face interaction, a practice that may not have been part of their culture before COVID-19. Each business will likely assess the value of a traditional work environment over the “new normal” as it relates to cost and culture.
Have you seen a decline in investors?
It is too early to tell where the real estate investment industry is falling in the short term.
In the long term, commercial investors will likely be the backbone of this recovery. Many investor clients reduced their position in equities as the financial and business environments became unstable. Many are proactively reallocating resources to commercial real estate, most specifically vacant land. The amount of capital waiting on the light at the end of the tunnel gives confidence that current economic impacts are not all doom and gloom. Many sectors will evolve and likely look different in the coming years. However, indicators suggest a stronger and more fast-paced recovery than was witnessed in the previous recession caused by the collapse of the mortgage and housing markets.
Do you have more questions?
Our dedicated team of commercial real estate professionals are available to address questions or concerns about the local market. Guidance for tenants and landlords, as well as information about unique investment opportunities, are just a phone call away.