Re-using Retail Real Estate That Has Been Impacted By The Pandemic
Amid a global pandemic, a new question about retail real estate has been put on the table: What is it good for at this point?
When I first started in real estate and was trying to get a foothold in an area, I would start out with a lease listing or two. I would call the owner to set up an appointment to see the space, and then their question would come: Do you have anybody to rent the space? I may have had a potential tenant in mind, but because I would just be seeing the space for the first time, the more likely answer was no. But, not wanting to say something negative, I would talk about the possible uses for space and try to paint an image in the property owner's mind.
Now, we really have to attempt this to create this visual image on an even bigger level. With the move to online everything is here to stay, but people still need destinations — during a pandemic and after the threat passes. Brick-and-mortar retail is just that. And a possible answer to the question of what retail real estate is good for today is reuse.
As one expert points out, "The gateway observation is that reusing buildings is difficult. Commercial buildings are typically built for intended use, and not only is it difficult to convert them, but it’s also very expensive." The alternative, tearing the building down and constructing for a new type of tenant, doesn't hold much promise. Who is that tenant in a pandemic? At the same time, taxes, maintenance, insurance, and a host of other things still continue tenant or no tenant. And what about the bank if you have a loan? You can't do much to remove its security interest in the property, so tearing the property down may not be an option.
Urbanization has been a global mantra, and the United Nations predicts that by 2050, 68% of the world's population will live in cities. So if the push on a global planning level is density, thus cities, for retail property owners, it is a case of push forward or starts over. The value and reuse play under these pandemic conditions will focus all interested parties because the tax base is at stake, as is the retail viability of the municipalities the properties are located in. Yes, reuse will be tricky, but it's not impossible. We may do well to think of the axiom location, location, location.
For now, here is what commercial property owners should consider.
1. We have to admit that nothing will ever be the same. Not only do we need to triage our investments, but we also need to put them in a position to thrive once more. We can do this first and foremost by making sure all areas are truly clean and free of transmittable disease. The customer must see recognizable science behind how you have prepared for customer and employee safety, no matter the current use of your building.
2. I have discussed in the past that I believe strongly in a combination of in-person, brick-and-mortar showrooms, and online ordering. The delivery can be in-store or to the customer's desired location, and this setup could allow for smaller store footprints and retain the impulse element to in-person shopping.
3. The business operation style and execution operation must not be legacy or rigid at this time. Commercial property owners and operators, you have a brain trust at your disposal — your staff and your property tenants. Ask them in earnest about how we can make our future together bright. Trust what they say and implement what you can of it. Cheer them on.
4. The specific reuses for existing properties have many local and demographic variances, and as such, we cannot cover for taste or local flavor. Many factors there will even have to change. But we can save the future for later and care for what we have now. The future will evolve as we get government surety about outbreak insurance and safety standards.
Above all, what is sorely needed at this time is a team of professionals ready and able to devise plans, represent, and advocate between all related interested parties in order to make a reuse plan that's lasting, reasonable, financially sound, and, of course, useful.