Pandemic has accelerated huge changes in commercial real estate

Pandemic has accelerated huge changes in commercial real estate

COHOES – Living in the past is not something commercial real estate executives can afford to do.

As the coronavirus pandemic rages in upstate New York amid hopes that much of the population will be able to get vaccinated against COVID-19 within a few months, the commercial real estate market is going through a reckoning.

Who would have imagined a year ago that Crossgates Mall would be suing well-known tenants like the Gap and Lord & Taylor over unpaid rent?

Or that landlords would be still barred by Gov. Andrew Cuomo from evicting their commercial tenants?

What we have learned is that in the age of the novel coronavirus, anything is possible.

And when it comes to commercial real estate, the idea of opening up the sector to new possibilities is what is moving the industry these days.

Sweeping changes drive opportunity

Just ask Todd Curley.

Curley, a partner with The Prime Cos. in Cohoes, says the pandemic didn’t crush his industry.

Rather, he said, it just accelerated the sweeping changes that had already been underway for a while because of the technological advancement that has swept up all segments of society.

The key to the survival of commercial real estate firms has been the diversification by successful firms into a wide variety of sectors, such as not only retail and restaurants but also office and industrial space, he explained, since the dynamics of the market have shifted during the public health crisis.

The most drastic change has been in the retail sector since non-essential stores and malls were almost immediately closed by the state when the pandemic reached the state early in 2020.

Although malls and other non-essential businesses like department stores and others are now open, much of the damage has already been done as people flocked to Amazon, Walmart and other online retailers for their daily and holiday shopping. Observers believe they likely won’t be returning to the mall.

“The pandemic forced consumers to adopt online shopping more quickly than planned,” Curley said.

But that isn’t a bad thing, especially for those in the real estate industry who were looking ahead at the trends.

Curley says the realities of the pandemic were like a fast-forward button on society, which has had a conflicting relationship with traditional consumerism for a while now even with the technological onslaught that has promised food, travel experiences and shopping on-demand from the touch of your phone.

“As with any economic disruption, there are winners and losers,” Curley said. “While the coronavirus outbreak halted the hospitality industry with widespread hotel and restaurant cancellations, it spurred demand for industrial space primarily to support distribution and storage.”

And also drive-thru restaurants.

That’s why Prime Cos. made sure that its new 3.36 acre multi-use project on Van Schaick Island in Cohoes called Delaware will have one on site. The development will feature nearly 100 units of mixed-income housing and commercial space that will include a yet-to-be-determined drive-thru tenant such as a coffee shop or restaurant. The residential portion, which is under construction, will be finished this summer, and marketing for tenants of the separate commercial and retail building will begin soon.

“Some retailers – especially drive-thrus – remained strong” during the pandemic, Curley said.

Office space market in flux

While residential commercial real estate has remained stronger than most sectors, the commercial office space market is in flux because so many employers are requiring their employees to work from home, and those who are working in offices need to spaced further away from their colleagues in less densely populated settings.

Curley and others say that has been the greatest change to happen to their business.

“The sudden shift to work-from-home from some sectors has created new expectations about flexibility,” Curley said. “This has the biggest impact on the office sector as some companies will choose to downsize their office space and allow associates to work remotely, while other businesses that want to remain in the traditional office set up will potentially need to expand their space needs to give individuals larger working areas (for social distancing).”

The expectations of employees is key to this shift in the commercial office space market says Seth Rosenblum, CEO of the Rosenblum Cos. in Guilderland.

Rosenblum said companies just can’t bring their workers back to the same old workplace. There are going to have to be major safety measures put into place to encourage social distancing, and workers may expect to work from home for a majority of the time. People aren’t going to want to return to the old days.

Yet, Rosenblum stressed, company offices are where training takes place and culture is maintained and created. So offices need to focus on those needs going forward, even after the majority of the population has been vaccinated and people feel safe going back to the workplace.

“The office is no longer where people have to be,” Rosenblum said. “It’s (going to be) where they want to be.”

What does this mean? It means that companies will need less space, but they will also need flexible space they can increase or decrease when needed based on who is in the office.

Rosenblum says that when the pandemic hit, people thought that would be the end of co-working spaces. But Rosenblum believes that co-working space, especially those geared toward companies seeking flexibility, will be popular to help firms transition from the pandemic lockdowns.

But this concept is based on the idea that people will expect to keep working from home as much as they can or want. In many cases, productivity has increased as employees can better balance work and home life.

“They (both companies and employees) have seen the upside of being able to work from anywhere,” Rosenblum said.

Diversification means survival

The key to survival for many has been diversification into many different commercial real estate sectors. CBRE in Dallas, which has local offices and is the world’s largest commercial real estate and investment firm, said its revenues dropped nearly 5{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} during the third quarter of 2020, although profits dropped nearly 10{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb}, as the firm had tried hard to diversify in previous years.

“Our third quarter performance highlights the progress CBRE has made in building a more resilient business since the last downturn occurred more than a decade ago,” Bob Sulentic CEO of CBRE said in a statement back in late October. “The resilient aspects of our business, coupled with our moves to quickly align expenses with reduced market demand, are helping us weather the sharp, Covid-driven fall in property leasing and sales.”

Those commercial real estate firms involved in logistics and package deliveries have been the biggest winners during the pandemic.

“Right now the best is commercial rental for distribution companies such as Amazon and FedEx,” said Wesley Shernow of Copper Club Management, an Albany real estate firm. “Commercial markets can be very stable during the pandemic, even more so than residential – but that depends on who you’re renting to.”

That means when you have a company like Amazon or another package delivery or online retailer that is doing well as a tenant, you are in luck.

“For example, if you rent to Amazon, you know rent will be coming in on time,” Shernow said. “The company is thriving.”

Despite all the bad news nationally regarding unemployment and COVID-19 infections and deaths, many in the Capital Region business community are hopeful for the commercial real estate market.

Todd Shimkus, president of the Saratoga County Chamber of Commerce, just did a “reopening” ribbon cutting for Bow TieCinema in Saratoga Springs in December after it had been closed for months during the initial pandemic closures.

“I think our local economy and our local businesses have thus far demonstrated a ton of resilience,” Shimkus said. “We did nearly 50 ribbon cuttings during (the) pandemic. This shows people are still taking risks and investing in our local economy in Saratoga County. The federal stimulus will help. Getting more people vaccinated will help. We will have some commercial space available as we come out of the pandemic, but I’m confident that will be temporary. When I see an open space here, I see an opportunity. I suspect that I’m not alone.”

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