This year has altered the path of virtually almost every sector in society including commercial real estate. Plans may have been in place at the beginning of 2020, but much like the rest of the world, adaptations had to be made and trends have been altered. We wanted to take a moment to reflect on what we have witnessed as a commercial property management company over the course of the year, how it compares to years past, and what the future might hold for industrial, office, and retail properties.
Sunizo Superior Realty Management is a commercial property management company located in Fort Myers, Florida. Sunizo manages a portfolio of properties that span throughout Florida and Georgia. The team has a cumulation of decades of experience in commercial property management. Here at Sunizo, we have managed, monitored, and engaged with changes in commercial real estate over the years. Here is what is particularly notable about 2020.
Industrial/Flex Market is Expected to Remain Strong
Sunizo Superior Realty Management General Manager, Rich Hering, has remarked as we finish out the fourth quarter, the industrial/flex market has remained as strong as it was pre-pandemic. Much of the portfolio Sunizo manages is industrial. The strength of the industrial sector is also reflected in the National Association of Realtor’s “Commercial Real Estate Trends & Outlook for October 2020.” In the report, NAR notes industrial flex sales were the least impacted this quarter, industrial leasing volumes for industrial warehouses and industrial flex spaces increased, more industrial property sales are expected, and additional industrial construction is anticipated.
The expected forecast is that the industrial sector will endure and might even flourish next year. This appears to also be the case locally as it is echoed by local officials. In reference to the Southwest Florida area, Ricardo Noguera, Manager of the Cape Coral Economic Development Office said there is high demand for warehouse flex space. Noguera said three buildings have already recently been built and are leased up.
Retail and Office Have Slowed
Many retail and office facilities have been impacted directly by measures put in place to curb the coronavirus pandemic. Everything from capacity to operational structures have been modified as we have witnessed some restaurants switch to take out and some businesses, such as event facilities, have not been able to operate even on a minor scale. Some companies cannot afford rent because they do not have the customer traffic they depended on in the past. Each business is facing its own unique set of challenges.
The Cape Coral Economic Development Office does note that locally there continues to be optimistic outlooks. It referenced a building boom on Pine Island Road with more than $300 million in construction and permitting underway, plans for the South Cape, and other future developments.
The speculations throughout the nation are abundant about how commercial real estate will fare, but only time will illustrate how retail and office will come out on the other side. According to the “Emerging Trends in Real Estate” by PwC and the Urban Land Institute “millions of retailers will not survive.” The report also highlights the shift by society to adapt and engage in business and personal lives, virtually. The stark reality is some businesses may not ever return to the traditional in-person formats we grew accustomed to. But it would be dismissive to not recognize there is a desire expressed by many for the longing of going back to how we engaged in business pre-pandemic. This creates a dichotomy of uncertainty for the future.
Both Landlords and Tenants are Having to Adjust
It is important to remember in the majority of cases, commercial properties are foremost an investment. Right now, investors, REITS, business owners, and landlords are having to determine if they should keep or sell their commercial assets. Landlords depend on tenants filling up their spaces and paying their rent so they can in turn pay their loans and/or maintain their income. While tenants are relying on their customer base for their revenue stream. All of which along the way have been impacted. As landlords and commercial property management companies review tenant requests case by case and evaluate possible rental concessions, some tenants are reviewing their leases and determining if they can even survive the length of their lease term. Property management companies have had to work on creative solutions to ensure both parties can move forward with possible resolutions.
Prospects Are Taking Longer to Commit
Hesitancy is a noticeable trend in prospective tenants over the past few months. The calls and inquiries about spaces available for lease continue to come in, however, potential commercial customers are taking longer to commit to a space as they weigh the pros and cons of moving into a physical space and/or relocating. They are also opting for shorter term leases. Negotiations are cautious on both parties as end users, brokers, and agents work to find a middle ground they are comfortable with. Each party is working to be realistic with their terms to prepare for a potentially ambiguous future.
Multiple Factors Can Have an Influence on Commercial Real Estate
Even in these uncertain times, it is important to take into context all relevant factors. Some major chains and small businesses are not suffering currently, and some necessary and essential service providers are thriving. In Florida, home sales are doing quite well in parts of the state, there are low mortgage rates, and many continue to migrate here. These elements will have an impact on the Southwest Florida economy and the possible rebound and strengthening of the commercial real estate market in 2021.
These are just some of the significant developments that have surfaced over the course of 2020. The new year can bring forth new challenges, alleviate or exacerbate current commercial-related circumstances, and it can come with opportunities to thrive. We will all have to see what 2021 holds for tomorrow, as today is still a changing landscape.