Co-working spaces such as Blue35 in Grand Rapids could become increasingly popular office options for companies as more employees transition to working from home.  Co-working spaces such as Blue35 in Grand Rapids could become increasingly popular office options for companies as more employees transition to working from home. COURTESY PHOTO

Brokers make adjustments, brace for market changes in wake of COVID-19

BY Sunday, May 24, 2020 06:30pm

After a day filled with showing commercial space to a potential client, Bryan Bench felt like his professional life had briefly returned to what it was before the disruption that came with the global COVID-19 pandemic.

“I was surprisingly pretty doggone busy (today),” said Bench, commercial manager and partner at Muskegon-based Core Realty Partners LLC. “It almost felt like a normal day.”

While Bench and his colleagues returned to the job full force on May 7 under an updated executive order from Gov. Gretchen Whitmer that applied to the construction and real estate industries, they still face plenty of uncertainties as the state looks to slowly jumpstart the economy.

The questions commercial brokers are considering include what will happen to inventory, will pent-up demand return and what types of businesses will come calling first. 

Common sense approach

Enhanced safety measures and best practices are a major emphasis for any business that has returned as the statewide COVID-19 pandemic appears to be on a downswing currently.

While the commercial real estate industry certainly has its share of cutting-edge tools available, including the ability to provide as much as a 360-degree virtual tour of a property without a potential client ever having to venture out in public, the process of showing space remains relatively unchanged save for a few common sense practices.

“We might have a little bit more Zoom and telephone communication — maybe (a client won’t) go out looking at a property until they really have to,” said Tom Postma, principal at the Colliers International office in Holland. “But it’s different from residential, where you’re going into someone’s house. A lot of time, (commercial space) is empty space so you don’t worry about coming into contact with people.

“We have had some showings where everyone has a face mask and everyone stays six feet apart. That’s easy to do in a large industrial space.”

While virtual tours are an often used solution in residential real estate, when it comes to commercial real estate, “People still like the touch and feel of real estate, to walk through it and see it,” Postma said. 

While Core Realty’s Bench admitted that the safety measures do feel a bit more relaxed when compared to an industry like construction, or even the residential side of real estate, that doesn’t mean that commercial brokers are throwing caution to the wind when it comes to safety.

“There have been times where I’m showing a space and maybe I’ll handle opening all the doors and turning on the lights — they don’t have to do any of that,” said Bench. “It’s common sense things like that. It’s important to use that common sense no matter what type of business you’re in.”

Taking the pulse

When it comes to the three primary sectors of commercial real estate — industrial, office and retail — the crystal ball respectively turns from fairly clear to a hazy mess.

Commercial brokers appear to be quite confident that the two-month shutdown of virtually the entire economy won’t be enough to rattle the industrial sector of the West Michigan economy.

“Industrial still (has a) very limited market,” said Postma, who specializes in industrial real estate for Colliers. “I don’t see this really affecting our industrial market at all. I’m seeing people getting back to work and opening up and starting to inquire about space. I feel good about that.”

Postma also labeled the sector as a driving force for all other sectors in the local economy, making it positive news that many industrial businesses are able to get back on the job — and safely.

Part of that quick return to work can be attributed to the nature of the spaces and how today’s work is completed.

“A lot of factories are less employees and more machinery,” Postma said. “The 10-foot and six-foot distances are not really an issue in manufacturing spaces. It might be different if you get into a meat packing plant where people are side by side, but you see a lot more automation and less employees per square foot than you’re used to.”

Matt Abraham, senior real estate advisor for Grand Rapids-based First Companies, was just as bullish on the industrial sector.

“It’s a strong sector in the West Michigan economy — lower end of supply and high level of demand,” he said. “As we come out of this, my expectations will be that it won’t be 100 percent like it was pre-COVID, but it will certainly come back at a much quicker clip than other sectors.”

The outlook in regards to demand for office space gets a little murkier while the retail market — including hospitality and entertainment, which were arguably the hardest hit of them all — is a complete toss-up. 

“There are countering arguments (in regard to demand for office space) where one argument is that more space will be needed and the other argument is that less will be needed because more people can work from home or remotely,” Abraham said, noting social distancing measures could lead to greater space needs. “My sense is that both of those polars will exist in the short term, but in the long term, there won’t be much change.”

‘Very different’

Count Rick DeKam, principal at Portage-based Midwest Realty Group LLC, in the camp expecting office spaces will shrink coming out of the pandemic. 

“I don’t think they’re going to completely do away with their office needs because I still think you need a touchdown place, or a place to have meetings, or a print center,” DeKam said. “But I think people are going to reevaluate how they are utilizing their office space. It might take a few years, but as a result, the footprints are going to be smaller and there’s going to be more space sharing like with touchdown centers … and co-working solutions.” 

Combine that with worries that the growing federal debt tied to stimulus packages will have a deflationary effect on the economy, and DeKam thinks the economics of office properties could be in for an upheaval if property values dip and owners “overnight” get upside down on their holdings. 

“That’s right at the tip of our nose right now,” he said. “What we’re moving into now is going to be very different.”

As well, DeKam thinks the reliance on e-commerce retailers like Amazon.com during the pandemic “added gas to the fire” of a “retail evolution” that’s been taking shape in the past few years. 

For his part, Postma had more questions than answers for how the retail market would emerge from this stalled economy.

“Retail is probably the biggest question mark,” he said. “The smaller businesses that have been shut down, how are they going to sustain this? Are we going to see a little bit of space open up because people go out of business?” 

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