Many of us remember exactly where we were or what we were doing the day WHO declared COVID-19 a pandemic. So much has changed since that day last year, and we would be remiss not to take a closer look at what has happened in commercial real estate.

Apto’s roots were born from the financial crisis of 2007 and 2008. Our founder and CEO, Tanner McGraw, was a commercial real estate broker at the time, trying to figure out how to support his new family with a career based only on commission. The recession gave him the time and space to re-evaluate and adapt and build something that commercial real estate agents really needed to run their businesses.

2020 was also a year of reflection and adjustment, so we sat down with Tanner to ask him some questions about the impact of the pandemic on commercial real estate and some predictions for the future of the sector.

Q: What have you broadly observed in the past year? Which sectors did well? Which sectors have suffered?

Answer:

First of all, I want to take a moment to reflect on everything that has happened since March 2020. Last year around this time I sent a message to our clients and the brokerage community with some words of support and resources that may be of help. Before I get into the business side of it all, let me acknowledge that the past year has been anything but easy. Many lost family and friends, their jobs and faced new physical and mental obstacles. Talking to my commercial real estate connections, be it Apto clients or friends, I found comfort and silver linings in this industry’s ability to adapt and learn. I hope for everyone that 2021 brings positivity, health and happiness, both personally and professionally.

To get into it, I’ll start by saying: industrial is really strong, and the distribution side is what really drives that. Consider the dramatic increase in demand for goods purchased online (such as through an Amazon, for example) and the need for large warehouses to store/deliver those goods. Anything that supports e-commerce has led to a huge industrial boost. Re-shoring is also another reason why the industry is doing well. While the legislation that worked to bring much production back to the US was passed before the pandemic hit, COVID-19 has certainly helped speed up the process.

Multi-family is stable. Retail was a mixed bag, but for the most part, the industry was not doing well. Needless to say, many shops and restaurants suffered during the early days of the lockdowns, and many were forced to close their doors permanently and leave without much hope of a new tenant. For those who survived, they were able to get by with ordering online or offering food delivery/pickup options.

Traditional office hurts. Coworking and flexible office space aren’t doing great, but there is a business model for the future (we’ll get to that later).

Q: Based on what you saw, how have commercial real estate agents and brokers adapted to the challenges posed by the pandemic?

Answer:

More than ever, brokers saw the need to invest in technology. They needed a way to foster collaboration between teammates while working from home and not being able to be in the office together. You can no longer stop by your co-worker’s desk to remind them to send you a follow-up email or send you the latest property marketing materials. When speaking to our customers, they said it became much more important, even necessary, to have a CRM to manage all these moving parts from home.. Customer communications and meetings were also held virtually for a long period of time, further reinforcing the need for software such as Zoom, Slack, Microsoft Teams, etc.

I shared this feeling with our prospects and customers at the start of the pandemic and lockdowns, but the commercial real estate industry is struggling. Many of us have already weathered a financial crisis, and I knew that the same strength and tenacity that got us through 2008 would see us through 2020 and beyond.. It goes without saying that the past year has been incredibly challenging, but it has also been an eye opener and has created new opportunities for us that we would not have found otherwise.

Q: Let’s talk about some emerging trends when it comes to coworking/flexible office spaces. What does the future look like for that sector? What about full remote work if it specifically pertains to CRE brokers?

Answer:

I think the future looks bright for coworking and flexible office spaces. “Thanks to” the lockdowns, it is clear that you no longer have to be in the office to do a lot of jobs. People have gotten a taste for flexibility and want more of it.

Ultimately, though, commercial real estate is about relationships and ultimately a business that does rely on facetime. And while people have enjoyed the flexibility and opportunity to work from home, people also like to get out of the house and change their environment every now and then. Having a nice piece of real estate or office to meet people gives some credibility. That said, having an office space that supports lower capacity or flexible working is a trend that is likely to continue, also in commercial real estate.

Q: What about the impact of the COVID-19 pandemic on commercial real estate technology?

Answer:

As I mentioned earlier, the COVID-19 pandemic made many brokers realize they need to invest in CRE technology. A slowdown in transactions in many sectors has created the space to explore technology offerings. Brokers don’t want to jump off the merry-go-round of a deal. At the start of the pandemic, the merry-go-round stopped, giving them time to focus some of their efforts elsewhere.

CRMs aside, there has been a lot of interest in software that falls under the bigger prop tech umbrella. Take virtual tours for example. The technology was there, but the interest was low. While nothing replaces the need or value of seeing a space in person, virtual tours help you narrow down your list of options or get a broad view of what you like, akin to viewing photos of homes on a platform. as Zillow. FastOffice has done very well and the pandemic has maintained that momentum.

Touchless or keyless access to buildings will likely remain here, even after we stop social distancing and obsessive hand washing and hand sanitizer use. Openpath is one such software that has done very well. Tenant engagement platforms like Lane and HqO have helped landlords bridge the gap between physical and digital workplaces to create the best tenant experience possible. In general, rents and economic pressures on buildings are forcing owners to think about efficiency improvements across the board.

Q: There has been a lot of M&A activity in the technology sector over the past year. Was the pandemic the cause, or did it just accelerate the momentum of the M&A activity that was already underway?

Answer:

COVID-19 crushed many business plans and left businesses out of money. And with widespread lockdowns and everything virtual, many startups haven’t been able to raise money the way they’d hoped. Then the options that remained were: close your doors, or be taken over. So I’d say the pandemic has accelerated a lot of things that were already in motion. I feel like there’s been an M&A announcement every week.

Liquidity is strong at the end of the day. There is a lot of private equity and venture capital available, and plug technology is an attractive investment.

Q: Let’s talk about Apto specifically. How has the pandemic changed or informed your strategic planning for the company?

Answer:

Overall, I’d say our business hasn’t changed dramatically and we’ve weathered the pandemic well. While we’ve seen some turnover at companies that were previously healthy, increased pressure is putting new people at the top of the funnel who are interested in evaluating technology because now they have the time to do it, the scale in balance. While I can’t go into much detail, our product roadmap does include some tools and features that are better suited to a virtual work environment.

On the personnel side, we have shifted more towards a flexible working model. We are a company of 30 people that now rents office space for 20. We no longer do onsite sales and have adapted our sales and support moves to be completely virtual. We’ve adjusted capital planning accordingly and thought more about how we’re spending our resources to get through the slower time we saw in 2020. Like many companies, the pandemic gave us the time and space to review our own internal operations and processes and make strategic adjustments for the future, and 2021 is already off to a good start.

Q: What are your broad predictions for commercial real estate in general, given that you’ve had time to reflect on the past year? And what about CRE technology specifically?

Answer:

There have been many cultural shifts over the past year that will eventually make their way back into commercial real estate. From take-away cocktails to on-demand and virtual education, and everything in between, brokers will feel the effects of these changes on how they do their jobs and support their clients. I never see (or at least not in our lifetime) the real estate agent role disappear completely, but the way a real estate agent provides services is sure to change. After all, it is already there. And I’ve seen overwhelmingly positive changes that have led to increased efficiency and better communication and engagement with the customer. Whatever unprecedented event has happened or will happen in the future, brokers have always and will continue to adapt.

In general, the adoption, innovation and investment of prop technology has been a loud drum beat for years, but in recent years it has become much louder. Due to the COVID-19 pandemic, I believe we will see the rubber on the road and a spike in adoption and investment in technology from the usual laggards.

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