Adapt and overcome. If you agree with that statement, you will likely agree with the overall mindset of today’s guest and with his thoughts on the commercial real estate market. This week, Cory Wright, Managing Broker at William Wright Commercial, joins Adam & Matt to highlight the commercial market pain points and which industries and property types will falter and those that will emerge stronger than ever before. Want to know the direction of the commercial real estate market? We’ve got you covered! Cory also gives his top piece of advice for handling an economic downturn: from mindset, to leadership, to specific strategies you can begin to put in place TODAY. Don’t miss this one!
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Episode Summary
Who is Cory Wright?
Cory is the managing broker of William Wright Commercial Real Estate Services. They have four offices in the lower mainland and Vancouver Island. They handle all commercial asset classes (retail, industrial, multi-family, development sites, office) and they have just launched a commercial property management division.
How has COVID-19 (Coronavirus) affected the commercial real estate industry?
Well, we will get through this, but there will be some business casualties. It is tough to say how quickly we will get back to normal at this time. We are encouraging our clients, landlords and tenants to work together. There is a lot of support on the banking side, so hopefully both can get through this. Certain businesses will be more affected than others. For example, will people still be comfortable working in a WeWork? Will restaurants have to limit capacity to make people more comfortable? This remains to be seen.
Which business areas will be hit the hardest by COVID-19 (Coronavirus)?
WeWork may be hit hard. Putting hundreds of people in an open office concept in a single room. Is this a model that society will move forward with? This could also affect offices in general in Vancouver where there are many open concept office spaces. If this model doesn’t survive, this could put a lot of inventory back into the marketplace.
Small restaurants and other small businesses with large overhead may have trouble surviving for more than a month or two. I want to stress again that landlords and tenants should try to work together. There is nothing in a private contract between the landlord and tenant that says the tenant gets any special treatment. Hopefully, both can work together. We might see these contingencies for tenants for this type of shutdown (COVID-19) worked into lease contracts going forward.
How is William Wright advising landlords in these difficult times?
From a landlord perspective, your best bet is to work with your tenant. There is the mortgage deferral the landlord can apply for. There is nothing that says the landlord must pass this deferral to the tenant, but we encourage landlords to work with their tenants in this regard. It costs money to re-tenant a property, which could cost the landlord more in the long run than just subsidizing their existing tenant in the short term. There is also time as a consideration. We have no idea at this point when things will get back to normal. It would be very difficult to find a commercial tenant right now during social distancing, as many people are deciding to wait and see on the buy side and the lease side.
How will the culture change due to COVID-19 (Coronavirus) and how this will affect the commercial real estate industry?
Going back to what I said about restaurants. Maybe a 300-seat restaurant will now only have 200 seats because patrons are not comfortable with the old setup. People might not want to be packed into rooms anymore going forward. This will affect the tenants and the landlords.
There are people that may have not previously used services like Amazon, that may now start to embrace them. There is also this idea that countries should try to be self-sufficient going forward and businesses may want to bring manufacturing back to North America to avoid a future shut down if this type of thing happens again. This could be safer and an easier risk to control for businesses going forward.
Another change could be restaurants that may pivot to accommodating services like Door Dash and Skip the Dishes only. Restaurants may find that a ‘Ghost Kitchen’ (no physical restaurant, but a restaurant kitchen that allows delivery and pickup) is more profitable because people may want to take food out and these restaurants would be much cheaper to operate without having to lease a large restaurant space.
What is a worst-case scenario for the commercial real estate industry due to COVID-19?
A doomsday perspective would include major issues for industries like cruise ships and airlines. Are people interested in getting back on planes and cruise ships immediately after we get past this virus? If not, and cruise ships suffer, Vancouver would be affected. If we don’t have large cruise ships docking in our ports with passengers taking advantage of local restaurants and shops, Vancouver’s economy could suffer.
Vancouver is such an international city and we are dependent on travel. Vancouver is starting to become a head office city for businesses recently though, which it wasn’t before. We are getting the tech industry here and the tech industry doesn’t seem to be affected by this virus. The tech industry in a city like Vancouver will bring employees and help the economy in the long term.
People may be finding there are technologies out there they haven’t used before this COVID-19 crisis that they actually enjoy. Businesses may also find that it was easier to change their old ways than they had initially thought, now that they have been forced into it.
Do you think North America will come out of this COVID-19 (Coronavirus) crisis better prepared for the future?
We are better prepared today than in the past to handle a pandemic like this. It is not the same as the financial crisis of 2008, which was a crash. This coronavirus is causing a forced recession, where the economy has been forced to close. It might not be an immediate bounce back, but the economy will be back. The economy was thriving before this crisis and we have learned from past hurdles, including the financial crisis of 2008 and September 11, 2001. This suggests the economy will not take a long time to bounce back.
Vancouver is also a city that is seeing a large number of people moving here each year. These people need places to stay and jobs. This suggests a strong economy for Vancouver going forward.
Canada is also different than other countries that are dealing with COVID-19. We have a younger population than say, Italy. It could also be argued that our government was quicker to respond to the crisis and we have done a better job at flattening the curve. This suggests Canada will be much further ahead when this is all done.
Where do you see the opportunities in the next 3-5 months or 3-5 years in the commercial real estate market?
The asset classes in commercial real estate in BC are very strong. Industrial, which has been a fantastic asset class in the past, will only get better with time. There will be a shift where we will see businesses that need this type of space get into it and it will be more difficult to find. The land needed is being turned into towers.
Multifamily will also be a safe haven for investors in the long run because people will always need a roof over their heads. There have been some challenges recently from the NDP on rents for landlords, but this is still a safe haven going forward versus other things like retail.
The office market has historically had low cap rates on investment property because it has been challenging due to WeWork and Amazon taking up all the space. If there is a bit of relief and the vacancy rate does rise a bit, you might see some of the cap rates become more generous for investors and there might be a short-term opportunity there. Money is also pretty cheap right now. This makes me optimistic overall about the commercial industry.
What is a 2nd wave of COVID-19 (Coronavirus) hits in the fall? Does this change what happens in the commercial real estate market?
Yes, a 2nd wave could negatively affect the industry and would be another setback. As a society, hopefully, people will take a cautious approach. We will also have to have confidence in our governments to advise on what people should be doing to prevent this. You may also see the changes in our society that we are talking about before regarding reductions in capacity in stores and restaurants that will help hinder any further outbreaks.
5 Wire (isolation edition):
Favourite takeout: Dominos thin-crust pizza
Favourite isolation album: audiobook – The Ride of a Lifetime by Robert Iger
Favourite isolation show: Tiger King, Suits or Onward (for kids)
First thing you will do out of isolation: go back to the gym
Favourite isolation cocktail or beer: Fat Tug IPA
Find out more about William Wright Commercial Real Estate Services.