It’s no surprise that the COVID-19 pandemic has hit all sectors of the commercial real estate industry hard, causing developers to pause projects, shuttering retailers and forcing multifamily owners to plan for sudden drops in rent collections.
Colliers International recently released a report looking at how the pandemic has impacted one particular region of the country, West Michigan.
And again, it’s little surprise that COVID-19 has slowed much of the momentum that Grand Rapids and its surrounding Michigan communities were enjoying before the coronavirus outbreak threw the country into turmoil.
Across much of the country, the industrial market has remained the steadiest commercial sector during the pandemic. That’s the case in Western Michigan, too.
Colliers said that while the industrial market in Western Michigan has slowed, deals that were in motion before stay-at-home orders are moving forward. The closing dates of many of these deals, though, have been pushed forward at least slightly to accommodate for due diligence delays.
Several local manufacturing companies are considered essential, and many have been able to operate at some sort of reduced capacity, Colliers said. There is also a growing need for short-term warehousing as many companies are working to boost the efficiency of their supply chains.
Colliers said that the owners and managers of multifamily properties are facing their own challenges. After all, leasing operations are normally done face-to-face. That has changed. Owners are also dealing with the uncertainty of university life. It’s not certain yet that college students will return to their West Michigan universities in the fall. That could leave multifamily owners with plenty of unexpected vacancies to fill.
Owners and managers also need to plan for the needs of self-quarantined tenants who won’t be leaving their buildings to go to work. The need for enhanced cleaning of common areas is also placing stress on owners. Colliers said that owners and managers are limiting the use of amenities such as community rooms, health clubs and swimming pools.
Then there is the serious matter of tenants not being able to pay their monthly rents. Colliers says that it expects new policies coming soon relating to evictions. Owners will have to adapt to whatever new rules these policies set.
The office market has been hit hard by the pandemic. Colliers said that some office deals in West Michigan are progressing, especially with law firms and banks considered to be essential businesses. Other companies that had planned to grow their office space, though, have hit pause. Many of their employees are now working from home. And there’s no timetable yet as to when, or if, most employees will return to their offices. Because of this uncertainty, many companies have put a hold on their office expansion plans.
Colliers said, too, that any office buildings or leases of educational spaces have halted as schools and universities have shifted their focus to online learning.
Colliers reports an increase in office tenants asking for rent reduction or free rent as offices remain closed. This, of course, is placing plenty of pressure on office owners. Colliers brokers say they are not necessarily seeing office deals killed, but rather placed on hold.
Of course, the retail sector has been particularly devastated by COVID-19. In its report, Colliers describes it this way: “The retail and service industry was hit with a massive blow, almost overnight.” Colliers said that those working in this space in West Michigan are still in shock.
The shutdown has accelerated retailers’ efforts to boost the online component of their shift from bricks-and-mortar locations to an omni-channel strategy. And as bars and restaurants were forced to close or resort to carry-out and delivery only, Colliers has seen a massive impact on employees. Of course, many of these employees are renters, and the financial struggles they are now going through are directly impacting the owners and managers of apartment buildings.
Retailers are getting creative, though, in addressing their challenges, Colliers said. Some restaurants are expanding carry-out, drive-thru and delivery services. Because of social-distancing mandates, many retailers are regulating the number of customers inside their stores at any one time and have instituted safe distancing for customers in check-out lines. Others have limited store hours and have created exclusive store hours for those with compromised immune systems.
As Colliers said, the retail shopping experience is dramatically different today than it was in January and February.
Colliers reports, too, that the larger players in the investment world have hit the pause button. This could open opportunities for local investors to take advantage of less competition in the market. Deals that were close to the finish line at the start of the shutdown have still closed, while deals that were in their infancy have mostly been extended or canceled.
Demand for critical infrastructure products such as logistics, transportation, pharmaceuticals, critical manufacturing and healthcare, though, should increase, Colliers says. That’s because investors will be rushing toward quality and stability.
And if you’re looking for a bit of hope? Colliers offered this: “We believe that while some asset classes will feel more pain than others, commercial real estate as a whole will remain a favored investment class for investors seeking the yield returns and stability that West Michigan assets have traditionally offered.”