Despite the widespread “flee for the suburbs” that has occurred primarily among the commercial office and residential real estate sectors during the pandemic, leaders representing several real estate organizations predict a rapid recovery for real estate situated in the downtown core. The group also presented their opinions about ecommerce, the pricing of distressed real estate, the new hybrid of office workers and overall lessons learned about market trends in 2020 during a webinar sponsored by Marcus & Millichap.
Panelists included Thomas Bisacquino, President and CEO, NAIOP; Doug Bibby, President, National Multifamily Housing Council; Wendy Mann, CEO, CREW Network; and Tom McGee, President and CEO, International Council of Shopping Centers.
“After 9/11 the general sentiment was that people would never work in high-rise office towers again, but that has not been the case obviously,” explained Bisacquino. “There are advantages to working in the suburban areas now, but we see this trend cycling back as normalcy returns and companies realize the advantages of working in a dense, pedestrian-friendly, office environment.”
Mann concurred and added, “People, especially young people, love being in the heart of things and downtowns will return in a big way. Yes, we expect some changes, but companies will maintain offices where the talent is and we see that as downtown in the long run.”
Understandably, it has taken time for CRE companies to decipher and adapt to business trends in 2020.
“When the pandemic first hit, our membership was in a state of denial and believed this situation would only last for a few weeks, but across the board they demonstrated tremendous adaptability and resiliency,” Bisacquino added. “We see a hybrid model emerging with employees working two to three days in the traditional office for collaborative benefits, with the balance of the week from their homes. The reason more people are not coming to office buildings currently is for psychological reasons and, as we continue to see, this number is rising weekly across the country.”
According to research presented by Marcus & Millichap, more than 70% of all employees prefer working from a traditional office a majority of the week. Calling the pandemic a global health crisis, moderator Hessam Nadji, President and CEO of Marcus & Millichap, explained that government stimulus and other actions took only seven weeks to make a positive impact, compared to more than 13 months to see relief from the global financial crisis in 2008 and 2009.
“The economic damage in 2020 was profound, but it is a mistake to generalize this as a trend, and no one should underestimate the power of pent-up demand,” Nadji said. “Don’t underestimate the power of people either, as well as the desire among people to be together. If there is a belief that the real estate market is headed for distressed pricing, you are absolutely incorrect. The economy is roaring back and records have been set concerning the number of new businesses that have been started this year.”
NAIOP members are “reporting optimism in all markets with more than 90% of tenants paying full rent currently,” Bisacquino added. “The trends that we were tracking pre-pandemic are now accelerating, with ecommerce propelling the industrial sector to the top of the real estate list. Ecommerce increased from a ‘just in time’ purchasing situation to a ‘just in case’ model due to panic buying. This has impacted the supply chain as goods and products are not feeding brick and mortar stores, as much as they are feeding industrial space and warehouses that directly ship to the consumer.”
Those brick and mortar stores have faced large challenges in the midst of the pandemic.
“Retail has been the epicenter of this crisis and, in the face of incredible obstacles, our members have survived with curbside pickup and other innovations,” ICSC’s McGee said. “We have spoken quite often about the importance of an omni-channel presence, and retailers that have experienced the greatest success are those with the largest footprint. There is only one channel really and that is the consumer channel. We are optimistic that, because consumers have spent less this year on dining, the upcoming holiday season will perform extremely well.”
“The most important lesson learned is to communicate with clients and members constantly and that is impossible to over-communicate,” said Bibby of NMHC. “Stay positive, recognize achievements and remember that everyone likes to hear good things.”