COMMERCIAL CORNER Commercial real estate industry recalibrates during COVID-19 By Alex Ruggeri
As millions of people self-distanced, stayed home and couldn’t visit businesses or offices temporarily shuttered out of safety concerns, the economic ripple effect could be felt across all sectors of the commercial real estate industry. Illinois REALTORŽ talked to three practitioners in retail, multifamily, office and industrial to find out how the sectors adjusted to the unprecedented changes and what could happen next. Retail: New economic challenges could permanently change the retail landscape
Mike Mallon, CCIM, CRX is a Senior Vice President at Draper and Kramer Incorporated, a privately held real estate firm. Mallon has more than 40 years of experience in the Chicagoland market, specializing in retail development, brokerage and consulting.
22
www.IllinoisRealtors.org
The COVID-19 pandemic brought the country to a halt and the resulting lockdowns and social distancing temporarily closed a wide range of businesses, from restaurants and retail to gyms and shopping malls. The entire commercial real estate sector has been affected, and the uncertainty hits tenants and landlords alike. The retail industry had already been fending off internet sales, overbuilding and retail bankruptcies. Now it is getting clobbered by a pandemic-fueled economic crisis. Worse, our industry may be forever changed by it. In addition to the countless independent retailers and restaurant businesses that may be forced to
permanently vacate their stores because they can no longer afford them, a growing number of corporate chains are unwilling or unable to pay their rent. LA Fitness, Subway and Mattress Firm have also stopped paying rent as a way to strong-arm shopping center owners into rent reductions, lease amendments and other courses of action designed to offset the losses they are incurring because of COVID-19. That begs the question, what happens next? While some may look to muscle their way into distressed assets, it is very possible the commercial real estate market will never look the same. While small retailers and restaurants melt away, some of their online rivals are beefing up. Amazon, despite no shortage of bad publicity, gains market share by the day. In fact, it recently sailed into trillion-dollar territory. Walmart, Target, and Costco are poised to come out of COVID-19 even stronger and more formidable than they were before, as smaller rivals suffer and wither. The cold, hard reality is that many retailers will not survive. However, retail has always been about survival of the fittest‌or the biggest. This downturn will create new and unpredictable opportunities for retailers who respond accordingly and provide customers with what they want, which is a safe shopping experience at a price they can afford.
