THE JM TEAM REPORT, DISRUPTION OF COVID-19 IN THE CRE INDUSTRY.
Construction costs may increase as contractors will switch to national-USA steel rather than importing steel from China. This may be extended to other construction items of raw materials and will result not only in pricing but in significant project delays for developments that have not yet broken ground.
Another very important factor will be the labor force, specially in the next 10-12 weeks, due to the safety measures, which will for sure contribute to slow downs.
Advise: Comprehensive planning review including the different contingency scenarios.
Due to event cancellations and restrictions and/or limitations on business travel, the hospitality sector is the Commercial Real Estate type that will likely face the most direct impact from the COVID-19. Federal, State and Municipal authorities have issue policies to cancel gatherings to include 10 to 50 people.
Advise: Take advantage of the low occupancy for remodeling and updates of the rooms as well as the common areas and banquet facilities.
The office sector in general should see a small impact over the short term from the coronavirus outbreak. However, absorption should be delayed in time, increasing the vacancy rate for a while until the demand comes back.
Advise: Great opportunity to attract good tenants, offering some concessions as a promotion.
THE JM TEAM believes that there will be an opportunity to place manufacturers in new spaces to make up for some components that will no be available for a period until the inertia of lack of production be covered. We are dealing with a couple of manufacturers that wanted to start yesterday to cover for the disruption of some components. However on the other hand the effect of the coronavirus may slow down and even shut down some operations, specially on those that are labor intensive.
Advise: Good timing to find space long term at great terms, Tenant’s market, but difficult times for some tenants that have labor intensive operations in the short termto be able to afford the rent.
Definitively the retail sector will have the biggest impact, restaurants closing down, retail centers and entertainment venues as they avoid crowded places.
Advise: Difficult times for tenants that have closed down to be able to afford the rent.
THE JM TEAM recommend Landlords to look at the situation one by one and come out with a plan to help the tenants survive these next 12 weeks, by lowering the rent and placing the credit at the back end, get an additional percentage rent to cover the abated part, etc. Remember it is better to collect for 4-month ½ of the rent than NOTHING!