Amid these times of uncertainty, Xplor Commercial Real Estate wanted to send a message to all of our clients, tenants, owners, investors, and friends. As our nation and the world proceed forward, you can trust our knowledgeable team will be there for you. Nothing is more important to us than the success of our clients, which means we will be diligently working to stay on top of the evolving economic situation. We just wanted to share our opinions on the commercial real estate market. These are strictly our opinions, so take them for what they are worth.
General thoughts of the real estate market and the effect of COVID-19 (Coronavirus):
- TIME: Most individuals are viewing this as a 2-3 month event, but are preparing for 12 months to account for an economic ramp up and recovery.
- INVESTMENTS: The private market is sitting on excess cash and watching stocks as potential opportunities, which may take money out of real estate in the short term, but we think this could last 6 to 8 months. Investors will then exit stocks and redeploy funds into real estate.
- OPPORTUNITY: It is obvious people are uncertain and uncertainty brings fear; however, fear creates opportunity. Prior to the mandatory social distancing measures business was bustling. It is no surprise the pace has slowed, but transactions will still take place. Cap rates should remain steady due to lack of good product. We all have been through economic volatility before, so be patient.
- GROWTH: Companies who are cash-heavy will take advantage of opportunities during this time. The restaurant industry could see some merger or private equity plays and there may be some back-fill and redevelopment opportunities. Necessity retail (grocery, drug stores, dollar stores, home improvement, etc.) are selling more than ever and are hiring. Distribution companies and delivery companies are also mass hiring anyone temporarily laid-off.
- FINANCING: Lending is a “yet to be seen” sector. The CMBS market is on hold; however, Life Companies are saying business as usual. Smaller private lenders are in constant contact with small business clients discussing short term relief and to gain a better understanding of what is happening. They are also discussing the same with their real estate clients.
- CONSTRUCTION: Some municipalities are delaying meetings or shutting down offices, which impacts construction approvals, variances, and rezoning. Delays on construction projects are inevitable.
- RETAIL MARKET: Landlords nationwide are receiving calls from tenants asking for rent relief (clothing, restaurants, fitness/studios, entertainment, and travel/tourism). We have seen a variety of expansion deals terminated or delayed. National retail real estate departments are seeing layoffs. Restaurants have seen the most drastic impact having to lay off 90% of their workforce. Most operators are expecting 30-90 day shutdowns with a 3-4 month ramp up, thereafter. It will likely take six months for them to get back on their feet and a few more months to build up cash reserves to consider expansion.
- OFFICE MARKET: Office Tenants have adapted and are allowing their workforce to work from home. This seems to be successful and it will be interesting to see whether companies forced into this situation will come out of it with a different outlook on space needs going forward.
- INDUSTRIAL MARKET: Industrial real estate has been the best performing sector of real estate over the past few years and we don’t see this changing. There will be issues with the supply chain and temporary plant closures, but we believe the pent-up demand for space and expansion will continue, once things return to normal.
- RELATIONSHIPS: More than ever, the Landlord/Tenant relationship is very important, and each should take this opportunity to build that relationship. It will pay off in the future. Landlords and Tenants should be open about their situations and hold honest conversations.
Overall, we need to remain positive and calm. This too shall pass. We are fortunate to live in Northeast Indiana, as our historical dips and recoveries are mild compared to other parts of the country. Please support your neighbors and we will get through this, as we always have. In the meantime, the Xplor Commercial Team is here to assist with anything you may need and want to ensure you that we are open, operating, and working harder than ever.
If you have any questions, please be sure to call our office at (260) 487-3699.
Be safe, stay healthy,
Xplor Commercial Real Estate Team
Contact us at (260) 487-3699 or xplorcommerical.com.