Commercial real estate could look different post-pandemic

Some options, such as drive-thrus, outdoor seating and flex office workers, will have staying power.
211
The Exhibitors Building in downtown Grand Rapids has eight restaurants, hotel space, meeting space and recreational facilities. Courtesy The Image Shoppe

The deadly pandemic has left commercial real estate at a crossroads as companies, businesses and individuals decipher how to safely return to a new normal or how to permanently revolutionize the way they will operate.

Subsectors in the commercial real estate industry that absorbed the initial brunt of the pandemic are returning to a volatile economic market. Some restaurants and retailers permanently closed their doors, while others are revamping the way they provide and deliver goods and food to consumers.

Most landlords and tenants have managed to reopen their doors for business, in part, because of financial assistance from the government such as the Paycheck Protection Program loan.

“Landlords received assistance so they haven’t really felt the stress over the last 12 months, not like they would if they did not receive the government assistance,” said Jeffrey Tucker, senior managing director brokerage and principal for Bradley Company. “We haven’t seen a lot of vacancies and the vacancies that were available are starting to fill in on the (Class) A centers because of continued growth. That was not what we were thinking we were going to see last May. We thought we were going to see some real stress. Businesses were closing, (other) places weren’t open for business and parking lots were empty, but we really didn’t see a lot of it. 

With those funds, businesses like restaurants that had to close in-person dining and had to resort to offering curbside pick-up service last year have been forced to become creative for the long-term, according to Bill Bussey, associate broker for Bradley Company.

“There were a lot of restaurants that didn’t have drive-thru but the ones that have figured out a way to add it have done that,” he said. “A lot of places like Biggby, for example, are coming up with drive-thrus only and sometimes both — drive-thru and indoor dining. They have manufactured buildings that they can put in a parking lot and it can have one or two drive-thrus, a double drive-thru only and have some tables outside, but you cannot go inside.”

Tucker said other businesses that have mastered the efficiency of drive-thrus are Chick-fil-A and pharmacies, including those at places like Meijer and Walgreens because there is less human-to-human contact. In addition to less contact, the addition of drive-thru proved to be beneficial to businesses and landlords during the pandemic.

“From a landlord’s perspective, if they have a strip mall and it is not a free-standing drive-thru location — if a landlord can only have two end caps to their investment, to their strip mall, and they cannot have two drive-thrus at the end — that is lost income for them,” he said. “If they can’t figure out how to navigate through the parking lot, and ingress and egress onto the main thoroughfare, that is lost income for them because the end cap with a potential drive-thru might, perhaps, otherwise be built for $22 per square foot, and if a Starbucks or McDonalds can go on the end, they could probably get $35 per square foot. It is significantly more new revenue and that same applies to pharmacies.”

Along with drive-thrus, Tucker said outside seating will be a requisite for any new restaurant. 

“They might reduce some of their interior footprints, but I wouldn’t start a new restaurant if I didn’t have at least 20 to 30 outside seating (options), because whether it is COVID or the next thing, we see the value in that,” he said. “People in Michigan love to be outside.”

While some businesses are closing, Bussey said some of those same businesses are opening and expanding in new locations where they can become more visible. Some popular retail stores netted new locations throughout the country this year. 

The businesses and the number of new locations this year, per Bussey, include:

  • 5 Below: 170-180
  • Old Navy: 30-40
  • Aldi: 100 
  • Citi Trends: 30
  • Dollar General: 1,500
  • T.J. Maxx: 122
  • American Eagle: 60
  • Fabletics: 24
  • Dollar Tree: 1,000
  • Burlington: 75
  • Target: 30-40
  • Starbucks: 50
  • At Home: 400

Daniel Burns, associate broker for Bradley Company and attorney for Dan Burns Law in Grand Rapids, said the pandemic has caused employers to think about how they’ll use their office space.

He said some employers are opting for open space, which was a concept employers were adapting before the pandemic. Now, however, some employers also are thinking about retracting space and have their employees work outside of the office.

Burns said employers are now maximizing the use of technology, which might become a permanent practice. While there were a lot of mergers and branch closings before the pandemic, Burns said banks and insurance companies are reevaluating the way they conduct business.

“I believe you will see banks and insurance companies reevaluate their space, really taking a long, hard numbers look at which of these groups of employees we need here, which ones are flex and which ones we are never going to bring back,” he said. “What the banks and insurance companies do will have a trickle-down effect and other companies will follow suit.”

Facebook Comments