A crisis situation like the pandemic lockdown naturally triggers extreme caution and risk avoidance but it also presents opportunity for businesses that are well capitalized and in a position to act aggressively. Below is a brief look at the opportunities in the three key segments of commercial real estate and where the land mines might be buried.  

 

Retail

 

Retail real estate really is a double-edged sword.  When we emerge from the stay at home and social distancing restrictions we will be in recession mode.  Consumer’s belts will remain tight for some time.  Just how long is impossible to predict given the very unusual circumstances that brought this recession on.  On the other hand, the shutdown will starve many business of the financial oxygen that they need to survive and they will not return, thereby thinning the competition.  This opportunity will be most present in the restaurant sector where some experts have estimated 33% of all restaurants in California will be wiped out.  Call it grave dancing…but an opportunity just the same.

 

Industrial

 

This was the tightest market before the pandemic with microscopic vacancy rates of between 1%-2% throughout Southern California.  There will be some softening of this market as a result of the shutdown as non-essential manufacturers and warehousing and distribution businesses are not able to operate, let alone move and expand.  Working on the other side is the expansion of demand from online shopping supply chain operations.  I predict significantly more flexibility from landlords with respect to free rent and lease commencement timing but do not expect a big dip in rental rates.

 

Office

 

The office sector should be relatively resilient since office building users have been able for the most part to keep their employees busy and engaged at home.  Notwithstanding, many office landlords are as worried as retail landlords.  There is a lot of chatter about the revelation office tenants are having that they don’t need all of that expensive square footage after all and choosing to downsize their footprint or exiting the market altogether when their lease expires.  I believe this has been overstated but landlords are very eager to sign up tenants and are showing a willingness to be creative with rent rates.  Now is a great time for office tenants ready, willing, and able to make a space commitment.

 

The catch for all three property types is that even if a lease does get signed, a commercial landlord or tenant cannot get contractors into their buildings to perform tenant improvements and get the premises ready for occupancy since presently, only residential construction is considered an essential business and is proceeding.   

 

To quote Warren Buffet, "When everyone else is greedy, I panic.  When everyone is panicking, I am greedy."  If you are well capitalized, you can sieze the moment we are in.

 

If you or your clients are feeling unsure about their options or strategy going forward with respect to their business real estate, feel free to reach out to me for guidance at (213) 258-6921.