COVID-19 Trends in Commercial Real Estate: The Changes Happening Down the Street

Welcome to the first of a 3-part series, where we’ll explore commercial real estate markets and the impact COVID-19 is making on business spaces and operations.

The focus of these blogs will be to highlight not the “big guys” but the everyday midsize owner, operator and manager who wears many hats and often has a portfolio of 1 million to 5 million SQ FT.

Much of the industry news has focused on large office and retail REITs muscling through COVID-19. However, there is a niche in the retail space that is evolving and, in some cases, thriving through the pandemic: the suburban neighborhood retail center.

Neighborhood retail centers, often anchored by a convenience store and restaurant, are evolving into local destinations for residents hungry to get out but not willing (or able) to go too far. These businesses are frequently owned and operated by smaller real estate companies, and these companies are being pushed to reinvent their spaces, business models and operating practices.

In the Sunbelt, these neighborhood retail centers will continue to evolve and pivot as the impact from the winter elements is muted. These can be thought of as the smaller siblings to the grocery-anchored centers, serving a smaller customer base and a more fluid tenant mix.

It’s intriguing to observe how COVID-19 pushed the digital transformation within this niche space. The first wave of disruption for owner/operators was to assess their tenant mix and viability.

The pandemic ushered in a spike of curbside pickup and delivery during the spring lockdown. Savvy owners moved quickly to reinvent their spaces and repurpose parking and outdoor seating to attract customers to the venue. Tenant improvement projects and budgets shifted towards the creation of outdoor spaces that can be utilized. In some cities, street parking spaces were transformed into “parklettes”—patios designed to accommodate eating or entertainment at a safe distance. Clearly, some business types did not fare as well, but that did not stop owners and businesses from assessing and reinventing their business models.

Think about it for a second. Isn’t the QR code menu experience convenient? How about the online ordering and pickup process? Touch-free payments? Who wants to touch anything moving forward? Those changes are here to stay. And the businesses that have created easy-to-use and easy-to-manage buying experiences are here to stay, as well. The digital transformation accelerated years of changes for businesses and consumers.  

The next change occurred when owners discovered that many of their office-based processes could not be easily ported to a “work from anywhere” experience. Smaller businesses who had not made the leap to cloud-based applications quickly changed direction.

They rapidly shifted everything to digital, including critical items like employee and customer collaboration moving to Zoom and Teams; ordering and delivery expanding through web portals and mobile apps; and accounting, HR and payroll tasks converting to SaaS applications.

In the commercial real estate space, we experienced one of the larger shifts in electronic payment adoption during these 3-6 months than we have seen in the last 5 years.

Many conversations have been about “WFH” (work from home) and its lasting impact on the office. But that is not the right conversation. This pandemic has broadened the adoption of “WFA” (work from anywhere) and a new era of productivity.

Commercial owners are accepting that through this digital transformation, they can scale their teams while providing great service that their tenants (and their customers) expect. Service requests, tenant communications, payments and procurement all have been enhanced with touch-free options.

What’s interesting is that many owners have coupled investments in technology with outsourced services. Back-office functions such as accounting, procurement, check processing and payroll all have viable outsourcing options. These often layer in additional benefits of cost-control and compliance. And a significant spike in IT and technology maintenance and support services has occurred in the market as the notion of having an “IT guy” is no longer viable.

Owners are seeking a rich tenant experience to facilitate purchases, communications and payments. As we move through this pandemic, it is clear that the neighborhood retail center will continue to evolve and flex. It will be interesting to see what new technological advances will rise to the forefront in the coming months.

We look forward to sharing the second part of this series soon!