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March to June, Where are We Really After 3 Months of COVID Effects on Commercial Real Estate

By Eugene McGrane

Well it’s been a long three months of Shelter in Place orders across most of the country. We’ve seen a record number of layoffs across almost all sectors but the most impacted have been retail and hospitality. As Americans and the rest of the world have stayed home for fear of catching the novel corona-virus we’ve all become armchair epidemiologists. I recommend this video for a laugh about what information without expertise and audience looks like.

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Businesses are searching for solutions to what their world will look like when we return and trying to plan for the unknown of what that date will be. I’ve consistently seen deals put on hold, meaning long term leases involving hundreds of employees and millions of dollars over years held on the uncertainty of viral spread. This is not without precedence in incident, think hurricanes, earthquakes, economic disruption, etc. What is without precedence is the widespread nature of this disruption. I’m going to take a moment to outline the disruption by sector that I have seen, the challenges and opportunities I see and lastly what I think we can and can’t expect long term. I promise to try to at least keep my sense of humor in describing what is going on. Bear with me.


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Oh boy, what a time to be a retailer or a landlord. Be it a small bar owner or a chain big box retailer selling t-shirts made in china this has been the roughest ride you can possibly imagine. First and foremost, this has been the wreckage delivered to both the small business owners and the retail employees. With at least 40 million people unemployed mainly in the retail sector across the country, this is not just a direct result of states issuing Shelter-in-Place orders, as we could see in early March, retail sales started to plummet as the virus gained traction across the world, the short answer is people don’t want to get sick. As states start to re-open across the country starting Memorial Day, we will see if retail can get its mojo back.

Short answer from me is no, looking again at what’s happening in the rest of the world and viral mitigation in the US being what it is, I don’t see consumer confidence actually returning until viral spread and treatments are available. The good news is virulence and treatment look to have better horizons than they did at the beginning of March, also SIP fatigue is real and people are trying very hard to get a sense of normalcy, which will help revive small retailers if they can weather the storm. But the sector is in for at least three more quarters of unprecedented pain. Think about when you can ever expect movie theaters to be open again, which drives traffic to all the ancillary small retailers in malls.

Long term, I think this continues the shift to traditional small downtowns in the suburbs leading the way as big-box retailers that don’t provide grocery struggling with soft good sales as more and more of that commodity shopping is done online. The other real challenge for the Macy’s, Nordstrom’s, DSW, Dicks, Cabela’s of the world is supply chain disruption. Manufacturing is a global exercise. We have spent the last 40 years developing just-in-time supply chains for component parts. Much of that requires things manufactured in all parts of the world. That supply chain is about to be catastrophically tested. So not only do we have a demand and delivery challenge for large and small retailers, soon we are going to have an exacerbated inventory problem.


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I honestly have no idea when travel will really resume. Many hotel chains may be looking at two years till a return to some level of normalcy. This is exceptionally challenging for both local and state tax revenues. California has an annual visitor count that is the largest of any state. Much of our local municipality budgets are based on the hospitality business. This could be the most challenging domino to fall in the COVID world. The good news it may end sooner than worst-case scenarios of this being a disruption that lasts years.

“Last year 83 million people arrived in the state on flights to participate in conventions, conduct business and spend money on tourism, far more than Florida, Texas and New York, the next three states that rely heavily on air travel, according to the U.S. Bureau of Transportation Statistics.”

If we assume in a hopeful model that some therapeutics are approved and prove viable in the next 8 months, I think the fear of travel dissipates. It still means hospitality as a sector will struggle at what amounts to zero revenue levels for a year. From now.


Hey, a bright spot. God bless the American consumer who even though huddled in his home living a Ready Player One existence (seriously if you haven’t read this yet, put it on your pandemic reading list, the Audiobook is exceptional) has continued to shop. This is allowing for the distribution networks of companies to invest and grow.

I have the latest Cushman & Wakefield Industrial Report, happy to discuss with anybody that has any questions. 

The question is, outside of Amazon and consumer goods companies selling food, what happens as the global supply chain breaks down. I don’t think we’re going to get to a point where there’s nothing to sell, but it is starting to feel like the moment when oil prices dropped to -$30 a barrel because production, storage and consumption markets were out of balance. Right now, demand is steady for warehousing space if not really strong, new product is still being built and rents haven’t retreated, yet.


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We probably aren’t going to see cube arrangements like this again anytime soon.

Despite reports to the contrary, its death has been greatly exaggerated; office is chugging along from a return on investment standpoint. From a user and transaction velocity standpoint, it’s a complete mess. Every significant deal in every market is on hold. That’s not an exaggeration. There are sure to be buildings that are selling and lease renewals getting signed. But as for the kind of long-term strategic planning that I specialize in, wow.

We make 20-year plans for our clients, basically, we take a 10-year horizon for initial occupancy and add ten years of planning behind that and use that as our basic operating procedure. Clients are justifiably freaking out about how Work From Home will affect their footprints. They are freaking out about their occupancy loads and their space designs. For the last 20 years, since the first dot com boom went bust, the tech open plan has ruled the forward-looking workplace strategists’ desk. Since 1999, the urban millennial and her subsequent Gen Z compatriots have pushed companies into high-density urban environments and floor plans. Gone are the IBM and Travelers office models, welcome are the Yahoo then Google and Facebook open space plans.

Now nobody wants to fire the first shot on what an office will look like. The answer? They will be more spread out among suburban and urban facilities, we will use less dense plans that people actually prefer, workers will WFH 1-3 days a week depending on role and commute. Right now, rates are stable but trending down in the abhorrence of a vacuum. Occupancy remains high as bankruptcies have yet to start vacating large blocks of space. Sublease space is growing rapidly. New starts on office construction are at a standstill. If you’re under construction, I think you keep going, hoping to have the best space on the other side of the pandemic. Right now, I’m not going into full recession planning for tenants, but for all my clients with time left on their lease, 18+ months, I am licking my chops to get a good deal.


Watch this video to get a sense of the challenges for the manufacturing sector.

It’s long but very good. Companies need to start preparing today that their supply chains for components are already disrupted. Put together by Blue Water Growth and Catalyst Connection. Credit to David Iwinski.


The sleeper for disruption during a global health care crisis, healthcare. Yikes! Receivables require patients and billing, and except for COVID and cancer, nobody is going to the hospitals. This is causing budget shortfalls across the board. The big winner is telehealth. With the forced disruption of office visits, many states have been forced to change the reimbursements paid out for seeing your doctor over the internet. This will lead to fundamentally better outcomes for both doctors and patients. Missed appointments are down, patients feel more comfortable asking questions and giving feedback to their doctors, language barriers are down as relatives can be available to help explain.

There will be blood as private equity has spent the last 15 years buying up different aspects of the healthcare business and loading it up with debt, and as receivables are in a state of shock, there will be debt defaults.

So, lots of “bad news” across lots of sectors, but I remain very optimistic for three key reasons.

Population growth, this is a bedrock for long term economic expansion. The Millennial generation is bigger than the Baby Boomer generation, and they will have their say about what comes next. I’m excited for it, we have lots of challenges ahead of us, climate change, technological disruption of employment, cyberwarfare, globalization of employment and production, but these are problems that need fresh eyes and fresh perspectives. Identity is not the enemy of cooperation, and younger people seem to grasp that in a way that’s going to challenge a lot of our preconceived notions over then next decade.

This will end, viruses have been with us since the first person domesticated a sheep along the Tiber or wherever it was. We get new viruses as a species. This one has exposed that spread in an interconnected world is an inevitability not a science fiction. We will need to do much better and treat each other with a much higher level of empathy to thrive going forward, but I like our chances.

Be nice to each other, plan and laugh at those plans, we got this. 

“I suspected certainty stunts growth.” Inspector Francis Xavier Flynn, Gregory McDonald

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