Emerging From The Pandemic
By David Dykes
In releasing its annual forecast for the Southeast, highlighting 18 markets, CBRE said in February commercial real estate was on solid footing due to the region's relative affordability, talented labor force and economic diversity.
The commercial real estate services and investment firm said it expected the Southeast to see unprecedented industrial growth, new office development, the resurgence of walkable urban retail and tremendous demand for multifamily product.
"The Southeastern markets continue to be on a very good growth trajectory," Dan Wagner, director of research for CBRE's Southeast region, said at the time. "Every primary economic driver in the region: in-migration, tourism, technology, manufacturing and logistics, are all trending in a positive direction."
Those markets included Greenville-Spartanburg, Columbia and Charleston.
"Oh my!" you might say now, given the coronavirus pandemic and its impact on nearly every phase of our business lives.
With commercial real estate under stress, we turned to a panel of experts last month to decipher current conditions, give updated forecasts and explain what the industry will look like once it recovers.
The verdict: Cautious Optimism.
The panelists said South Carolina's commercial real estate industry, like much of the nation, is in an induced coma.
Industrial development, some speculative, had been reaching all-time highs. Record levels of multifamily development were occurring. Elevated office vacancies were correcting themselves. Mixed-use communities and historical developments provided new urban retail opportunities.
But now retail has suffered. Economists said sales plunged 16.4 percent in April with record declines in many categories. Only recently have crowds begun returning to malls and stores as lockdowns are lifted.
Demand for office space has slowed as workers stayed home and Covid-19 disrupted market activity. Hotels have seen fewer travelers and occupancy rates will take time to recover.
But with many parts of the state reopening, there is hope a recovery has begun.
"South Carolina is in an amazing position," said panelist Stevie Field-Chavez, vice president of regional sales for GIS Planning, a leader in online economic development solutions for corporate site selection.
Companies are pivoting and recreating themselves to take advantage of new opportunities and that bodes well for sites that are ready, she said.
"We see the (economic) recovery going as fast up as it did go down," said Stephen Smith, managing director of South Carolina for CBRE.
He predicts a V-shaped economic recovery, or a sharp rise back to a previous peak after a sharp decline in certain metrics, and said commercial real estate should rebound by the third quarter and into next year.
"Unlike the previous crisis, the banks are in good position coming in," added Tyler Hudson, managing director of commercial real estate for Synovus Bank in South Carolina. "The balance sheets are very strong. Credit quality is at historically strong levels. So really no concerns there and it gives us room to work with borrowers."
The hospitality and retail sectors are taking the brunt of pandemic impact, but there are bright spots, he said. The industrial markets in Charleston, Columbia and Greenville are performing well and should continue to, Hudson said.
"It's going to be rather fluid and we're going to have to work through the pain," he said.
Colliers International predicted in April that in the Greenville-Spartanburg office market average weighted rental rates likely will stabilize during the first half of this year. The Interstate 385/85 submarket is expected to be the most active for the next few quarters because of the most prevalent construction activity.
However, that could change as the effects of temporary shutdowns due to Covid-19 will not be felt for several quarters, says Crystal Baker, Colliers research coordinator in South Carolina.
One local banker said earlier this year that the area commercial market was well-balanced despite concerns about multifamily being overbuilt. Looking at lease-ups and lease rates, he said it was hard not to feel good about that product. Certainly, he said, there was more need for lower price points in terms of rent.
And he said warehouse and industrial were going "great guns" with a lot of demand push behind it and ‘Amazonification' of the economy.
He was cautious about hotels, worried about oversupply and Airbnb competition and fearing a recession would limit travel.
"Skeptics these days might scoff at that enthusiasm. But Field-Chavez, during our panel discussion, said South Carolina has a unique passion and ability to figure out how best to proceed."
As we publish, the state is facing a tremendous challenge, the scale of which is unprecedented in recent history. Some of the declines have been staggering.
The retail recovery likely will be gradual and vary by geographic location, said Robert Benedict, a panelist on our roundtable and a Clemson professor of practice and former director of the university's real estate development program.
Customer experiences and interaction also likely will be vastly different, he said.
The pandemic, especially for retail, has been like "throwing lighter fluid on a charcoal fire," he said.
"The critical question is how quickly are we going to rebound from this induced coma, and whether there are going to be long-term changes in consumer behavior, hospitality and work environment," Benedict said.
Let's hope that this is the bottom.