Shutdowns imposed to curtail the spread of COVID-19 have changed the way real estate assets have been managed over the past two months, a trend which will continue as more people return to work.
Cushman & Wakefield executive managing director of asset services Molly Westbrook moderated a three-person panel discussion in a recent Real Estate Forums webinar exploring some of the issues property managers have been dealing with.
Topics included: differences between the four major asset classes; rent collection; technology and innovation; and what to expect in the future.
Retail has been the poorest-performing of the four major real estate asset classes for the past few years and it’s also been the hardest hit by the pandemic.
KingSett Capital executive vice-president of asset management Bill Logar believes some retailers may have to recreate themselves. He thinks the asset class will take longer to recover than others and it will be slightly different in the future.
“The poorly located and merchandised retail is going to suffer a lot,” said Crestpoint Real Estate Investment Ltd. vice-president of acquisitions and asset management Max Rosenfeld. “I think good retail’s going to continue to be strong.
“It’s not going to be a pretty next 12 to 24 months, but if you’ve got a good building in a good location, that retail’s going to be more valuable on the other side of this.”
Panelists agreed the industrial and multifamily asset classes have largely held their ground.
“I think the most uncertain asset class is office,” said Fiera Real Estate senior vice-president of investment operations Peter McFarlane. “There aren’t many people in office buildings (right now) and the future of office remains uncertain, given that we’ve all got used to not being in our offices.”
Fiera manages about 1,230 commercial tenants and 800 residential tenants at its properties, according to McFarlane. The company approved 177 two-month commercial deferrals, to buy time to figure out more about the crisis.
“Now we’re at a point where we’re all thinking about going back to work, but no one knows the duration of this event,” said McFarlane.
“In our minds, it doesn’t make sense to keep negotiating new agreements every month for an undetermined period of time. We have a duty to collect rents.”
More rent payments were collected from industrial and office properties than retail locations, where Fiera’s April collections were more than 70 per cent.
“A lot of our retail portfolio is open-air and that’s certainly faring better than the enclosed malls,” said McFarlane.
Fiera had almost no residential rent deferral requests and had collected 98 per cent of rents for both April and May. McFarlane expects that number to decrease the longer the crisis lasts if it eats further into people’s savings.
Logar said KingSett received just 30 rent deferral requests from its approximately 3,400 multiresidential units.
The company gave three-month deferrals to non-essential retailers forced to close by government order in March.
“In the office and industrial worlds, people have been resilient,” said Logar. “Rent collections have been pretty solid.”
Technology and innovation
While the real estate industry has been introduced to plenty of property technology over the past couple of years, the COVID-19 experience is accelerating the process.
Logar said his company will be evaluating technology uses while also looking at cyber-security risks to try to establish protocols.
With almost entire office workforces doing their jobs from home these days, Logar said companies have made increased use of communications tools including Skype, Zoom and Teams to keep in touch.
“There’s a list of a bunch of physical technologies that we’re looking at now, that we wouldn’t have been looking at three months ago in the same sort of serious way,” said McFarlane.
He cited innovations including touchless door openers, remote keys for doors and elevators, more effective filters for heating, ventilation and air-conditioning (HVAC) systems, temperature-reading cameras and remote mailboxes with cameras.
“Something that has been gaining momentum is technology revolving around monitoring of HVAC, elevators, water consumption and those types of things,” said Rosenfeld.
“I think there’s going to be a lot of emphasis on things that promote security, safety and health as opposed to comfort.”
Asset management in the future
Logar expects to see: restaurants reducing capacities; more curbside pick-ups of goods at shopping centres; changing manufacturing processes; more virtual building tours; and an increased use of online lease applications.
McFarlane said security and hygiene protocols will be enhanced and more people will be encouraged to work from home if they’re sick. Office layouts will also likely change to increase distances between desks.
“It will take a lot of careful and creative design in order to ensure that, if you’re going to make those changes, you don’t do them at the expense of making the office feel like a place that people will want to be,” said Rosenfeld.
Logar believes people are less productive working from home and the lack of face-to-face interaction reduces spontaneity and creativity.
On the other hand, he thinks the experience and knowledge gained from recent events could mean the home replaces suburban backup offices for large companies headquartered in downtown towers.
People have also become used to not wearing business attire from home, and Rosenfeld said more casual dress could become more acceptable for office workers.
Online shopping and deliveries will continue to grow, according to McFarlane.
“Once you get someone hooked who sees how easy it can be, that’s a very sticky customer base and you’ve just pushed a bunch of people further along that online ordering path.
“It may have taken five or 10 years to get there anyways, but now it’s been condensed into a couple of months.”
Embrace change, be ready to adapt
Businesses will need to become more open to change, according to Rosenfeld. He’s also unsure if distinctions between real estate asset classes will be as relevant in the future, especially with retail rents expected to flatten or go down and industrial rents anticipated to keep rising.
“I think you’ll get a bit more parity between rents and gross occupancy costs,” said Rosenfeld. “It becomes more about flexibility and how people are using space.”
Office employees will dictate when they want to return and what their workplaces should look like, according to Rosenfeld.
“I think our job as landlords is to make sure we’re listening and that we’re taking in opinions from across our portfolio and from outside our portfolio and from outside of Canada, and trying to incorporate best practices in a way where we are balancing, from a cost perspective, the landlord versus tenant needs.
“Real estate has very much become a recruiting tool for companies. It’s not just a place to have a meeting because you need to have a meeting. It’s a place that you advertise as part of your culture and that enables you to hire talent and bring talent on board.
“I think the talent is going to dictate what the space requirements are in the future and what people want to see. Our job is to be flexible and quick to respond to that.”
With more store closures expected, Rosenfeld thinks people will find new ways to utilize the spaces. He believes it may benefit the arts and artists who, previously, have been pushed to the periphery but now may have an opportunity to access these spaces.