Submitted by GRE
This new way of COVID-19-era life has rearranged every part of the economy, and the commercial real estate industry is no exception. In a matter of weeks, the lives of so many have changed in ways they could have never imagined. People can no longer meet, work, eat, learn, shop, or socialize in the same manner in which they used to. While many Connecticut real estate experts say it’s too early to determine the long-term economic effects, the short-term impact of the coronavirus is already visible, as lease negotiations stall, projects pause, and offices prepare to reopen at half capacity.
For this article, GRE surveyed some of Connecticut’s top commercial real estate professionals to gauge their outlook on the areas of the commercial real estate business most impacted by the outbreak of COVID-19.
Sales and Leasing Activity
David Fagone, president and CEO of R.M. Bradley, a commercial brokerage and property management firm in Hartford, said “Overall, things are moving along slowly as we try to assess what COVID-19 means for the economy. Most deals that were in process before the pandemic hit have continued to move forward in a positive direction. A few are stopped or in slow-motion. If deals have been slowed down, the delay has been a process delay related to town planning and zoning aspects, not necessarily because of the two parties changing their minds.”
Jonathan Putnam, executive director of commercial real estate broker Cushman & Wakefield Inc.’s Hartford office offered that “many tenants with a lease expiration or densification project coming up will likely opt for a short-term lease extension to give them time to recalibrate and plan until the national economy is steady again.”
While offices throughout Connecticut have been largely empty with stay-at-home orders, employers are typically locked into longer leases than what would allow them the flexibility to make shorter-term decisions such as shrinking space permanently or moving to a more suburban location.
Fairfield County Upswing
NYC has been the U.S. City hardest hit by the COVID-19 outbreak, and many New York City executives tend to live in southern Connecticut. Recently, Connecticut Gov. Ned Lamont said “Phones are ringing off the hook at real estate offices” in the southern part of the state.
Brad Soules, a director for the Stamford office of real estate services company Newmark Grubb Knight Frank, said Southern Connecticut’s commercial office market is experiencing some positive outcomes from the pandemic.
“Working and living in Fairfield County, we are having conversations with a lot of groups from the city that have employees and leaders who live out here asking if they should take temporary space locally until there’s a vaccine or at least an increased sense of security commuting into the city.” Consequently, Soules said in Fairfield County is seeing an uptick in leasing activity for satellite offices, executive offices, and even full new spaces. With countless New York City residents plotting to get out of Dodge once the coronavirus crisis abates, more companies could consider leasing office space longer term.
While real estate transactional activities typically tend to slow down during the summer months, the uncertainty of the pandemic and its impact on the economy has brought new business pipelines to an early standstill.
“A large tenant with a lease expiring in 9-12 months needs to continue the process and either renew or find new space, regardless of COVID-19,” shared Fagone. “If you are a buyer or seller, on the other hand, you have a bit of a grace period where the urgency to make decisions right now has been relaxed. With the uncertainty in the market, if something is not a must sell or a must buy, people are going to take their time and take a step back. People are at home. Showings are harder to do. Business travel is way down.”
As well, many commercial real estate firms have opted not to actively seek out new business
in the interest of being sensitive to clients and peers as everyone navigates uncharted territory professionally and personally.
Ford Gurall, managing principal of GRE, a real estate advisory and owner’s representative firm, senses a wide array of market conditions and deal pipelines depending on the real estate sector. “Fortunately our diagnostic testing laboratory projects have continued uninterrupted. The need for additional or enhanced testing will only increase due to COVID-19. We are confident that the sciences real estate market in general will remain strong and only expand amidst the challenges we currently face. Office sector projects have certainly cooled or deferred but not disappeared, while hospitality, another major market, has dried up completely for the foreseeable future.”
As Connecticut takes steps to reopen the economy this week, and workers come back to their jobs, businesses are still strategizing on how a return to the office will work. “Our Workplace Strategy team has been developing intelligent information to inform clients on important points to think about as they re-board their office spaces. A lot of this will depend on where these clients are located, what type of density they have in their office, and how many employees need to come back to the office right away,” said Soules. “In the short term, clients are absorbing information and trying to strategically navigate the next steps for a safe return to the office. We’re seeing that clients are starting to realize that we’re turning the corner on this pandemic and that life will open back up, but it may look a little different going forward.”
Jonathan Putnam of Cushman & Wakefield said he expects tenants will make short-term changes to
their workspaces. “Companies with dense workplace design will reduce office staff to a 25-50% capacity. Tenants won’t fully utilize their spaces. We might see a run of temporary plexiglass dividers and new innovative devices,” added Putnam. “If the virus eventually goes away or becomes a manageable situation, most people will go back to sitting comfortably next to each other. The question is how long will that take? I think the only way corporate real estate will get through this during the short-term is with a phased approach.”
Fagone added, “Corporations are strategizing on how to prepare for the first phase of re-opening. They are not yet prepared to talk about long-term strategies or changing their workplace philosophy.”
The transition is likely to be slow, uneven and cautious as employers navigate workers’ continued fears, government and public health restrictions, school and child-care closures, and – most of all – the prospects of a second wave of the coronavirus.
Connecticut’s cautious re-opening has begun, with certain non-essential businesses being allowed to open after a nine-week mandated shutdown. To manage public health risks, commercial offices must adhere to strict operating guidelines, including significantly limiting the number of people in an office setting, their proximity to one another and the duration of their contact.
R.M. Bradley is the property manager of Goodwin Tower, a 30-floor commercial office building in downtown Hartford. To determine overall occupancy rates, arrival times and any special cleaning needs, property management staff surveyed tenants during the shutdown. Fagone explained, “From a property management perspective, the single most difficult component of creating a safe workplace for our tenants and adhering to the state’s guidelines is navigating the building’s vertical transportation systems – the elevators.”
Building owners, property managers, and occupants of high-rise buildings will be tasked with navigating potentially long elevators lines. Fagone added, “We are trying to anticipate whether a 50- or 100-person queue will be the norm. Staggering arrival times can help. This is a fluid, unprecedented situation and evolving process. New information and updates to guidelines are announced what seems like daily. We know we will have to make adjustments to our plan.”
While the state of Connecticut is looking to landlords and property managers to provide signage, communication plans and hand sanitizer in common areas, the governor’s guidelines are also putting pressure on tenant companies to share responsibility and self-enforce their own premises. “Unfortunately, we can’t have property management staff on all 30 floors of every single building we manage telling people what to do,” said Fagone.
Returning to the office after this very unfamiliar and disruptive time will require additional effort of the part of office leadership to ensure a positive experience for employees. The only way to get through it is with a little patience and cooperation.