Looking Back, Moving Forward: How Industry Leaders are Assessing the Impact of COVID-19 on Commercial Real Estate (CRE)
It’s hard to believe, but it’s been a year since March Madness was canceled and our brackets were scrapped. A year since the schools were closed, and a year since American workers were sent home — many of whom had to pivot on a dime to convert their guest room, dining room or a corner of the kids’ playroom into a workspace. Organizations adopted new technologies and safety protocols to support productivity, and teams adapted to the changing workplace demands, from social distancing to video conferencing to new workflow solutions. With so many employees working from home, there was wide speculation about the future of Commercial Real Estate (CRE).
“There is no doubt that COVID had a profound impact on the commercial real estate industry,” says William Bailey, Chief Operations Officer at Dottid. “The pandemic separated the industry by asset class. All of the sudden, we went from one Monopoly game board to multiple boards.”
Just as the initial shutdown was not the same experience for everyone, so too with CRE. Office and retail activity might have ground to a halt, but the exact opposite was true for grocery and industrial asset classes. Because grocery stores were struggling to keep enough paper products on the shelves, “industrial owners, brokers, and agents could barely work fast enough to stay ahead of the insatiable demand for raw land and vacant warehouse space in the coveted ‘last mile’ category,” says Bailey.
Michaela Gunter, Senior Project Manager at M2G Ventures, likewise notes the significant shift toward industrial assets, even as the demand for traditional office spaces declined. “We’ve had to shift our business plan to focus more heavily on the industrial spaces. We’ve seen a lot of unexpected opportunities and a lot of competition in that market this year. We’ve also surprisingly seen an increase in sales in our retail tenants at the Stockyards, as it has become known as a largely outdoor tourist attraction.”
At Dottid, those early days of the pandemic gave our team valuable time to assess the changing landscape of CRE. We asked ourselves, what do our clients need now? What might they need in the future? We reached out to our clients and other industry leaders who were quickly turning to technological solutions to adapt to this “new normal.”
“At Dogwood Commercial, we have always embraced technology and tried to be forward-thinking in that space — COVID has done very little to change that,” says Joe Zylka, Director of Operations. “However, COVID has spurred another flood of technological options that we have spent a lot of time trying to wade through. The biggest challenge over the last 12 months has been discerning which technology was best to use and incorporate into our team’s day-to-day process. Dottid has definitely checked that box for us in terms of being a depot for communications across all our teams.”
After the initial shutdown, many workers began trickling back into the office, especially those whose work supported essential services and critical infrastructure. Others were told to continue working from home. And some workers rotated office days with their coworkers, to reduce building capacity in the interim. It wasn’t long before every organization, especially those within CRE, established their own rhythms with the help of technological innovations. “With the ability to work in multiple locations, a physical space or presence has truly been less important than getting the work done,” says Jon Altschuler, Founder of Altschuler Company. “I’m using my iPhone more than ever.”
“Like everyone else,” says Michaela Gunter, “we’ve relied heavily on virtual meetings and virtual signatures this year. We’re still searching for the right tools to collaborate and communicate with internal and external teams virtually, without increasing our overhead significantly.”
For Joe Zylka, the CRE industry didn’t change per se, just how we functioned in these same spaces. Although he objects to the term ‘new normal,’ he believes one of the best things to emerge from the pandemic is more empathy in the workplace. “People, at least on our teams, have come to better appreciate their teammates’ struggles and feelings,” he says. “It’s made us more focused on the emotional needs of our teams, clients, and investors. It’s continued to make us focus on ways to figure out how to be better.”
And here we are, one year later. Some things changed, some things haven’t. “COVID has obviously brought numerous challenges and forced people to ultimately change their way of life and the way they work,” says Kyle Waldrep, CEO of Dottid. “Yet the pandemic has also created immeasurable opportunity for innovation, thus providing the commercial real estate industry a 21st century opportunity towards modernization.”
With COVID numbers coming down and teachers next in line to roll up their sleeves, we are all ready to return to some sense of normalcy — and we can’t wait for the inter-office March Madness rivalries again. But even now, what the future of CRE looks like is anyone’s guess.
“Predictions, to me, all involve a two-part assessment,” says Jon Altschuler. “One, when will people feel comfortable again gathering inside in large groups, and two, what will consumer sentiment be for commercial real estate at that moment? I doubt it looks the same in the future.”
Michaela Gunter believes that “more emphasis and value will be placed on usable outdoor spaces, especially in mixed-use and office projects. I also believe last-mile distribution and warehouse spaces will continue to rise in demand, as e-commerce expands. Experience-based retail will continue to grow, while demand for big-box retail will decrease.” Gunter says she’s “excited to see how people begin to repurpose and reuse vacant big-box spaces in the next few years.”
“However it plays out,” says Joe Zylka, “we will adapt to it. You are not going to see empty office buildings. In North Texas especially, the resilience of the small business is part of what makes us who we are. We are a ‘figure it out’ community. We have faced challenges in the past, and we have overcome them.”
With so many unknowns, CRE has never been more exciting. We have come full circle, to be sure, but the pandemic has been a catalyst for growth and innovation throughout the industry — and we are hearing from large institutional ownership groups that the technology will give them an advantage in the future. “Now is the time to consider new technology,” says William Bailey. “Now is the time to get ahead of your competition.” Whichever board you’re playing, “if you agree that CRE is a grownup game of Monopoly, then ask yourself, what are you going to do when it is your turn to roll again? Will you have the latest technology at your fingertips?”
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