As 2020 came to an end, Anthony Luna and George Mayer of Coastline Equity sat down to reflect upon the various types of properties they manage (retail, office, residential and industrial) and how each product type was affected in the past year due to the Pandemic. One of the product types that were affected the most was commercial properties; more specifically, retail was hit the hardest.
Birds-eye view of the situation.
In the words of George Mayer, President, and Founder of Coastline Equity, "it's obvious that this year's biggest loss has been in the area of retail." 2020 was a year of many doors closing and, in some cases, unfortunately never opening again. Whenever we have a location with their “anchor” centered around something like a movie theatre and said company is forced to close, the rest of the surrounding businesses lose much-needed foot traffic they rely on.
At the top of our list for most concerning is specialty restaurants or theatres because, like Anthony states, "I just don't see a day in the next six to nine months, maybe the next holiday season, where we will see people back in a movie theater comfortably." The Pandemic has ultimately left retail and particularly places that require that personal experience and contact struggling.
Not everything George and Anthony discussed was terrible news. They also shared feedback on what to expect for retail in 2021 to survive the past year's hardships. This is a perfect example of what some experts have been predicting. George agrees that service-oriented businesses should be quick to adapt to the new post-COVID economy, with delivery and pick-up services. Coastline Equity is pleased they could advise their clients and assist them in navigating the Pandemic's worst. In most cases, they could survive the Pandemic with their tenants not being as affected as they could've been.
Office spaces are also going to be undergoing adaptations due to the Pandemic. "Offices are probably the second most impacted product that we manage," George said. In some cases, a solution was to use industrial properties since their value per square footage was better for tenants in some cases.
Malleability as a synonym of Real Estate.
Not only has the Pandemic altered the industry, in the past, but the "big-box" model has also had to adapt to vacancies due to companies going bankrupt. Owners had to break apart "big-boxes" into smaller units. "One property that I'm familiar with took the back portion of a big box and turned it into a storage facility," shares George. This allows revenue to come from renting the back's storage units, even if the business is not doing its best.
Recently, we had a client who lost a large medical group tenant. We were able to assist our client with breaking this large suite into two smaller units and maintaining the medical group's higher rent value. In the end, we were able to attract a smaller medical operator at a higher rent amount, and we used the smaller suite for a new service business. With the proper leasing strategy, we were able to assist our client with replacing the lost revenue and improving their net operating income.
Which Product Type to invest in 2021.
Many experts are giving their suggestions on how to invest in properties in 2021. Rob Overstreet, a member of the Forbes Real Estate Council, states a possible price correction in the "multifamily investment world." Our experts over at Coastline Equity are also offering some advice of their own.
Multi-tenant industrial buildings allow for investing and renting spaces to further value. Finding that flexibility in the building's space could be the key to increasing profitability.
An example would be investing in a space that can be used as office space and as a warehouse space. Being cost-effective is also a factor advised for clients to consider.
Our most significant advice is to look into the area of multi-tenant industrial buildings because of their stability throughout the years. This is because, as George states, "where it might have been 4%, it could be 8 to 10% now as supposed to retail... where it is 80%."
The overall market for 2021 strongly depends on the most significant rule of Real Estate, location. Clients should be adjusting and watching the market as time progresses and keeping in mind that Real estate is truly a long-term commitment, and clients need to keep that in mind in the coming year.