Covid 19 and the Zoom in the Room
As the California real estate industry wakes up from the Covid coma of 2020, the investment and management community are having to learn/implement new modalities in the space. At the head of this new landscape are: Health in the workplace, eCommerce’s accelerated crippling-impact on retail, and the work-from-home jolt to office space (the Zoom effect).
How is this seismic shift impacting owners and tenants? How is this going to impact valuations and leases going forward? Quick answer, the industry is going to have to learn on the fly. Real estate “think tanks” such as CBRE to the savvy multi-family investor all have identified the same challenges, but the course of action and predictive analysis vary widely.
One thing is certain, many sectors the real estate investment are going to be negatively affected over the next years if not decade. That is why it is very important to address issues which are immediately in hand, such as reviewing your property tax assessment.
As my property tax firm has discovered through our own analysis of real estate valuation from 2021 forward, there is no single pattern establishing. Valuation is going to range widely between different markets, property segments, and all the way down to the individual investments/operations themselves.
Office – Hit on the Horizon – The Zoom Effect
The Covid-19 pandemic is having a greater impact on commercial real estate than the financial crisis of 2008. While that downturn was the result of a liquidity crisis, the Covid Event has multitudinous impacts. To name a few, quarantines, loss of employees and outright closings.
As the sector digs its way out from the bottom of Covid restrictions, many changes will continue to affect the industry. How are property owners and managers going to address long term concerns/impacts such as equipping indoor air filtration with the latest virus-mitigating technology, outdoor areas, fitness centers, access to public transportation, public meeting places and conference rooms.
The largest elephant in the room is how is the “Zoom Effect” going to impact new and renewed leases? Telecommuting is here to stay as many executives and workers have found ways to be productive remotely. There is an argument that humans are social in nature and will naturally prefer to be back in large groups where free moving and instantaneous groups to solve problems and generate the creativity every organization needs. Sitting in front of a computer monitor or smart phone screen at a scheduled video conference just does not have “the juice” a face-to-face or a lunch meeting with your team.
On the other hand, many executives and workers find they are much more productive grabbing a morning coffee, stepping into their home office setup, and getting after the day’s assignment remotely. They don’t have to worry about sitting in traffic 1 to 2 hours of a daily commute, and the convenience of kicking back for an afternoon nap recharging their batteries for a refreshed second half of the day.
As companies review options of flex-schedules or outright integration a significant home-office workforce, how is this going to impact square footage needs of the next lease? Expect significant impact of this factor for many years going forward.
Hotels and Motels – Hardest Hit
If you are an investor or corporate holder in the hospitality industry, you know firsthand what a calamitous year was experienced in 2021. While all of California was affected, it was Northern California which was hammered the most.
As the Mercury News reported in September of last year:
As the In January 2020 compared to January 2019, hotel revenue per available room slipped 1 percent in California, 5.4 percent in San Francisco-San Mateo, and 6 percent in Santa Clara County-San Cruz County, according to Atlas Hospitality.
However, from April through August and compared with the same five months in 2019, hotel revenue per available room fell by 65.5 percent in California, 82.6 percent in San Francisco-San Mateo, and 76.9 percent in San Jose-Santa Cruz, Atlas Hospitality reported. The five months in 2020 were all periods of business shutdowns and massive travel restrictions.
Even the impact of 911 was minuscule in comparison to the Covid Event on the hospitality industry. Bad news aside, the hospitality industry is expected to come roaring back this year. The summer cannot come soon enough.
Retail Mess – Local and Small Chain Restaurants
The continuing pressure on retail (which was getting hammered pre-2020) is VERY concerning for investors, business owners and the institutions carrying distressed debt in this sector. Retail center tenants and whole centers themselves are getting boarded up with no hope of reopening.
While most national restaurant chains have not been impacted that significantly, there are huge number of closures of local mom-and-pop and small chain restaurants who have not been able to stay afloat. The glut of vacant retail space will affect values for quite some time. Not much good news on this front
One Exceptional Sector – Industrial Real Estate
Warehouses, logistic centers and industrial real estate have seen little impact from the pandemic, and have bright futures as digital commerce remains ascendant (more like triumphant). Many see an increasing need for industrial space as our country brings back more manufacturing and supply chains back to our shores.
The boom in the biotechnology space alone will be tremendous. Our property tax firm represents significant sector of the life sciences industry in California and almost all of these companies are purchasing huge amounts of capital assets and busting at the seems looking for larger R&D, testing and fabrication space.
Our nation has faced much more challenging times and we will eventually adapt and learn of thrive in a post-Covid world. As with every war, it is the daily battle front which will determine the winners and losers of the engagement.
One way to win one of those battles is to review and challenge your 2020 property assessment(s)…no matter when you purchased. The brutally of 2020 is now really coming into focus on how it has impacted assessable value for this year as you realize how your business property tax California is affected. The snapshot-date used to determine property value for this year’s assessment (January 1st) presents a time period of tremendous distress and this should be reflected in your assessment.
If you have any questions regarding your assessment, please call me or contact me at email@example.com
Jay is a founding partner of the property tax firm of Grant Lee Bradley, Inc. For the past 20 years he has led his company to be one of the top property tax consulting groups in California, Nevada and Arizona. Grant Lee Bradley is an elite group of property tax consultants dedicated to effectively contesting and collecting overpaid property taxes.
His clients include QUALCOMM, Siemens, Merck, PerkinElmer, SeaWorld, Fujifilm, Solar Turbines, Panasonic, DuPont, BD, LabCorp, Dell, Lockheed Martin, AirGas and many other Fortune 1000 companies.