Commercial Realtors Council President Russ Elliott just listed and sold his house in one day with the help of a residential Realtor. But his world – that of offices, restaurants and stores – is moving much slower.
“We’re not having the same experience,” he says.
Commercial real estate has always moved like a slug on a hot summer day compared to the residential market, Elliott clarifies, but this year, business is down substantially.
Seated in a conference room at Pointe Property Group in the Chattanooga suburb of Brainerd, Elliott loads the local commercial MLS and navigates to the transaction leader board to show how he’s doing this year compared to 2019.
“It’s been slow,” he says, pointing at the screen. “I did $35 million last year. It was my best year ever. This year is almost over, and I’m still under $3 million.”
Elliott says it’s unlikely he would have been able to repeat last year’s success, even without COVID-19 impacting commercial real estate in a big way, because 2019 was an extraordinarily good period for him. But he says the pandemic is definitely hurting the industry.
“Commercial real estate has slowed down tremendously, especially in the office world,” he says. “All these people are working from home and taking a wait-and-see attitude about their office.”
Not only that, but retail and hospitality are still being hammered, Elliott says.
Elliott mentions COVID-19 with the enthusiasm of someone who’s reciting a mantra they have heard and repeated hundreds of times. But, he says, the pandemic is not going to go away just because people are tired of it, so it’s important for brokers to find the silver lining.
According Elliott, suburban office space could be poised for considerable growth.
“Suburban office space is less dense than downtown office space. You’re not in a 20-story building, you’re not crammed into an elevator with a bunch of people because you can take the stairs, and there’s free parking,” he explains. “It’s become less scary than downtown office space.”
Elliott says Pointe Property Group has brokered several leases at its suburban office complex in Brainerd, including a handful of medical deals. As a result, brokers at the firm are trying to recruit more medical tenants, he says.
Industrial spaces are also faring well, Elliott adds, and could fare even better in the future because the pandemic has revealed weaknesses in the supply chain, especially from overseas sources such as China.
“U.S. companies are most likely going to bring a lot of manufacturing back home because they don’t want to be stuck in this situation again,” he posits.
Warehouses will join industrial spaces on the fast track to growth, Elliott says, because of the shift in consumer behavior in recent years – a shift the pandemic has accelerated.
“Warehousing is doing really well because businesses want to keep more product in stock. Look at what happened with toilet paper. We have to keep more stuff on hand in case this happens again,” Elliott says.
In addition, developers are building million-square-foot buildings in Atlanta that will serve as massive distribution centers, and investors are snapping them up because of online sales, Elliott points out.
“The warehouses of today are the retail stores of yesterday. They’re replacing malls.”
Although a few of Elliott’s fellow commercial brokers have told him they are leaving the business to “find a paycheck,” he’s not expecting a mass exodus.
“Business is off but most of us are still busy,” he says. “It’s part of being in commercial real estate. You’ll have a great year, and the next year, you won’t. You learn to hoard nuts for winter because this is a very cyclical business.”
Elliott hesitates to speculate further and instead says he’s also adopting a wait-and-see attitude.
“Everyone is hoping things will pick back up next year. But a lot of our tenants are still working from home and our parking lots are less full,” he says. “None of our tenants have left and they’re all paying rent, but a lot of their people are working from home.
“So, we’re waiting to see what’s coming down the road.”