PacBiz Times: Real estate experts forecast a 2021 comeback in some sectors, but not all

The Pacific Coast Business Times asked several local real estate brokers how they see the commercial markets in San Luis Obispo, Santa Barbara and Ventura counties developing in the coming year. Many are cautiously optimistic about the area’s ability to bounce back after what has been a bruising year for everyone.

Caitlin McCahill, Hayes Commercial Group, Santa Barbara:

Office: While there has been an accelerated adaptation of conducting business virtually through services like Zoom, Docusign, etc., there is also work-at-home fatigue, so I believe a hybrid workforce will start to develop once stay-at-home orders are lifted. Future offices will become more a place of team meetings and gatherings while individual work can be done at home on your own schedule. This hybrid model that I anticipate most industries adopt will have its own set of challenges, including keeping company culture alive, and of course cyber security threats. I see office square footage requirements contracting a bit, but don’t expect a huge disruption in the long term.

Industrial and healthcare, two sectors which have always been very stable in our market due to low inventory, should continue to be in high demand.

Pamela Scott, GPS Commercial, Santa Barbara:

Restaurants that survived the closings due to the virus will likely reopen and continue to thrive, as will increased leasing activity in the retail spaces vacated by the unfortunate operators who could not stay open.

The value of having restaurant improvements already in place saves significant time and money going through lengthy and expensive municipal entitlement hoops, thus creating new opportunities for would-be restaurateurs. But traditional retail space will continue suffering. In many successful cities, ground-floor smaller spaces with residential above or nearby to support these businesses, theaters and restaurants serve to re-energize the downtown areas. The city of Santa Barbara, as a consequence of COVID requirements, created colorful, festive pedestrian corridors which changed the paradigm of indoor dining and retail, thus introducing entertainment to the downtown equation.

Home improvement, fitness, grocery, automotive and personal service uses, in addition to eateries, should be able to survive post-pandemic, as those are less likely affected by online commerce. 2021 will be the beginning of a transition where some changes will be immediate, such as restaurants, and some changes will occur over time. The uses mentioned above, the survivors, will likely pick up where they left off, while those less fit to weather the massive changes in purchasing habits—such as clothing and gifts—will continue disappearing, or will use ingenuity and creativity and readjust.

Martin Indvik, Lee & Associates, San Luis Obispo:

COVID has treated markets differently based upon geography and product type. In general office product, retail and hospitality have been hit the hardest and remain the most vulnerable. The first half of 2021 will test many property owners and businesses. … To state the obvious, certainty and stability is what is needed so we can begin to make long term plans, price risk and move forward with some level of confidence again. For 2021, Q1 and Q2 will be the test, and Q3 and Q4 should be the beginning of the recovery.

Dawn Dyer, Dyer Sheehan Group, Ventura:

Being well-informed and proactive will continue to be important for multifamily investors in the coming months. Apartment rents and occupancy levels have remained reasonably strong, despite high levels of unemployment and widespread economic strain. Property managers who are proactive in communicating with tenants, and helping them find sources of rental assistance, will do better than those who expect residents to solve this crisis alone. … As long as the economy remains in a COVID holding pattern rents will be fairly stable, with slightly more demand and rent appreciation for larger units, as tenants double up in housing. However, rising property management costs related to the pandemic—signage, enhanced cleaning, PPE for staff, higher water and trash volumes—may erode profit margins in 2021.

Steve Brown, Radius Commercial, Santa Barbara:

While locally the CRE market has seen good activity after we got through the 2nd quarter, I think the rest of the market, except for retail, will recover slowly in proportion to the results of the vaccine and the relaxation of the imposed shutdown of our total economy by the state. I think general office tenants will be looking forward to going back to their workplaces, even though they have the alternative of working remotely. This will be good for office owners. Retail will take longer simply because, tragically, there are more failures in store for general retail that are not related to technology and essential home goods. In the long run, however, this will bring around opportunities for new business to backfill those locations, provided landlords realize that in our retail core they need to get more involved with the success of their tenants. Low interest rates will also help both CRE investors and businesses who rely on bank credit for their operations.
Bottom line, I can’t help but be somewhat optimistic for 2021 because of the virus’ disastrous impact on 2020. I think the eventual relief from the virus will spur renewed interest in CRE, which has been a mainstay for seasoned investors for a very long time.