Hi, I'm Jeff Rea, your host for Economic Outlook.

Welcome to our show, where each week we take a deep dove into the regional economy and the people, the companies, the communities and the projects that are helping our region grow.

The global pandemic and the economic crisis that followed has left a lasting impact on nearly every industry perhaps none more impacted than the commercial and industrial real estate market.

We'll take a closer look at those markets and the pandemic economy and talk about how they're poised to rebound coming up on Economic Outlook.

The pandemic has caused a shift in people's shopping and dining habits, and it's force companies to work remotely instead of in person.

Those things have impacted the commercial industrial real estate markets in a negative way.

But will those impacts last?

We're sitting down today for a conversation about real estate in a pandemic economy.

Please join me in welcoming Tim Mehall, Vice President of retail services and principal at N.A.I Cressy, Joe Grabil with Berkshire Hathaway Commercial Services, and Jeremy McClements, the vice president at the Bradley Company.

Just one other note; before we get started here at WNIT, we're respecting social distancing and assets at both our hosts and our guests joining us virtually instead of in person.

Gentlemen, welcome.

Thank you for joining me today.

Thank you for having us.

We appreciate having you back.

We obviously have a different conversation that we've had in the past.

We've really enjoyed the chance to get inside your brains in the past and talk about real estate a little bit.

And--and obviously with the pandemic, a lot of things changing.

So I want to really focus on that today.

I want to start maybe, Joe, with you and give it let's go back in time.

Hop in a time machine with me, go back pre-pandemic, talk a little bit about what's happening in the real estate markets before the pandemic hit.

So from my perspective, it was full throttle, right?

All the markets, office, retail and industrial were performing pretty strongly.

So strongly, in fact, that it felt a little bit like a sugar high.

The market was performing really, really well, kind of across the board, in my experience.

And the future looks so bright, you had to wear shades.

All right, Jeremy, let me come your way to let's say you do a lot with Warehouse Industrial, some of those things.

Tell us what was going on in that space prior to pandemic hitting.

Prior to the pandemic, the space was moving really, really well and honestly, none of that really changed with the pandemic.

It--it slowed down.

It definitely slowed down for a couple of months, but we really didn't slow down in terms of our business.

We did more business last year than the year before and the year before that.

So everything has kind of continued to grow.

The issue is obviously availability of space, and that's been a problem before the pandemic and then even after the pandemic is just having the space available.

Great things, Jeremy.

And Tim, let me come your way.

You talked--you spend a lot of time in the commercial real estate side of things.

Retail.

Talk a little bit about those markets, kind of what was happening here in our region, both Michigan and Indiana prior to the pandemic.

Well, as Joe described, it was a pretty robust market.

The the demand for space had already started to shift from larger spaces to maybe smaller multitenant shared buildings.

So that's where we saw the bulk of the development that was going on in--geez, whether it was St. Joe County or southwest Michigan.

A lot of restaurant activity.

There was a fair amount of banking activity.

But--but the shift had already been on a way from larger spaces to--to much smaller, more prominent out in front kind of spaces.

Great, so last March, the pandemic hits and we start to see impacts really on all industries that-- businesses--kind of the forced government shut down, offices go to virtual and such.

Many things are closed.

So--so let's walk through this last year a little bit and maybe talk about some of those industries and how--how they've been impacted, especially--maybe, Tim, I'm going to stay with you for a second--and to talk a little bit about kind of some of that--those forward front retail commercial restaurant kind of spaces.

And I feel like because of traffic those were impacted the most.

They may have been.

You know, the market took a real pause there for--for a little while, for a couple of months.

But most of my--I shouldn't say most--a good part of my activity over the course of the last eight or nine months has been, oddly enough, restaurants.

We've had some people exit the market that may have been suffering before.

The pandemic was just sort of the final nail.

But there have been people coming in right behind them to--to take some of those spaces.

Activity is--is--is up substantially if you've got a drive-through.

Not much of a dining room, but if you've got to drive through in a pretty good location, it's really high demand.

We're also seeing--we're seeing a shift.

We're seeing a little bit of it before, but even more so now, we're seeing a shift in uses, the straight up retail uses, whether it's clothing or shoes or, you know, the kind of things you can get online.

The demand is down for it, for brick and mortar and that stuff to a degree.

But people are coming in with interest for alternative uses, whether it's medical or services.

You can't get on the Internet, personal services that you've got to go out for.

So there's a lot of activity there right now as well.

Great.

Joe, take us inside the minds of some of your clients over the last couple of months.

They're wrestling with these shutdowns, the closures.

Some of them are obviously thinking about 'do I stay, do I go, do I grow?'

those kind of things.

Give us maybe some of that insight from some of your clients during that time period.

Sure.

Well, starting with retail and in particular restaurants, that's an industry that was essentially decimated by the coronavirus.

I think Tim spoke to it.

A number of the weaker players in particular in the casual dining segment where sit down was the primary component, it really accelerated, maybe, things that were inevitable.

But we saw TGI Fridays and Applebee's large, well capitalized chains, close stores, and lots and lots of sit down restaurants that were mom and pop operations just go out of business, period.

And although I think the early PPP loans and EIDL loans were well intentioned, the roll out of that was so clunky that for the smaller, less capitalized operators, they were out of business before the age--age showed up.

So--so that was a really difficult transition, interestingly.

And here we are a year later, and Tim's absolutely right.

A number of those boxes that went dark quickly, we've already got demand for those restaurant spaces.

And the real winners in this have been the folks with predominantly carry out delivery type models.

So I would be really surprised if there's a pizza store in St. Joe County that lost money last year, whether they're branded or unbranded, the same thing for the delivery sandwich shops and other folks that have a large delivery component.

And we've seen a big growth in our market of some of the delivery services like GrubHub and the like, incredibly popular right now.

On the office side, there's been a pretty radical transformation.

Lots of folks that can are working virtually.

And that's beginning to trigger serious questions about if I've been functioning reasonably well for six, nine, 12 months, do I really need that office space at all?

Can I work one hundred percent virtually?

I suspect the answer is no, that folks will discover that over the long haul, but it's certainly a temptation you get to ditch a whole bunch of overhead right up front.

So there are lots of businesses evaluating that as a change in the business model.

Jeremy, I'll come your way to continue that office discussion.

Your company obviously played in that space quite a bit as well, too.

What kind of observations from your office customers about not only navigating last year, but sort of the path forward?

I think, you know, everybody just like the guys have mentioned, everybody's looking at the entire picture of their office right now and what that looks like going forward in the future and definitely right sizing what that looks like.

So while that market was a little bit slow, like everything else at the very beginning of the pandemic, there's a lot more activity within the market right now with companies trying to figure out sizing and what they're going to look like moving forward.

So our company is a great example of that.

come into the office occasionally if I need to get things done, but I don't need to be in the office.

And so everybody is taking a hard look at what that is and it looks like for their business and their company and trying to figure out what the plan is moving forward.

I think, you know, keeping social distancing in mind and what that looks like with your employees is a really big deal, but also access and I.T.

support and what all that looks like on the office side.

So everything's changing with Zoom and with Teams and all these different opportunities that we have to be remote.

But at the same time, there's something to be said for getting into the office.

And so I think it's more just the right size and that's happening right now.

And activity starting and strong certain segments in areas like downtown has a little bit more vacancy rate than usual.

And so everybody's just trying to figure out what that looks like right now.

Joe, I'll going to back your way for a second, more of a let's call it global perspective or maybe not global, but let's call it the United States perspective.

So it seems to be pre-pandemic, there were some trends that for larger urban areas that--that there was a lot of growth and development happening there.

The pandemic seems to have had some people thinking whether they want to be in those urban areas.

Are there national trends that that we should be able to take advantage of post-pandemic?

Did this teach companies lessons that they'll learn about kind of where they want to locate based on big cities versus smaller, more rural--help us understand any lessons learned there.

Yeah, unquestionably.

In my mind and there's been a lot of press around this, the urban centers had created incredible demand.

I'm talking here about New York, San Francisco, the Bay Area, Chicago, what have you.

And I think a combination of the pandemic--already existing very high housing prices and then also in some cases, some civil unrest like what we saw in downtown Chicago.

It absolutely made people think twice.

If you don't get any of the amenities like the restaurants and the ability to go to plays or opera or what have you, if you don't have availability of any of those things, I think some people are asking themselves, why am I paying four thousand dollars a month in rent when I could be back home in South Bend, Indiana, renting for 800 or a thousand dollars a month?

And I witnessed that firsthand, where tenants of mine have relocated from L.A. or New York City.

And of course, they had connections already in the area, but they made a decision that they were unwilling to pay that kind of a premium for that kind of a life experience.

And so I think at least in the short term or short to intermediate term, there is going to be a flight from some of these really expensive places.

Over the long haul, I still think New York City and the Bay Area, you know, will have compelling value propositions.

But in the short to intermediate term, there's no question our area, our region is going to benefit from folks moving back to the Midwest.

Jeremy, I want to talk back to industrial a second, you said things had been really good this last year.

Obviously early on the pandemic supply chains had been interrupted companies that--had shut down have--has this, much like Joe is talking about, has the pandemic taught us certain lessons in the warehousing distribution.

Are there advantages to being here that they weren't quite as clear pre pandemic that might have been exaggerated by--by impacts during the pandemic?

Absolutely.

I think the biggest issue during the pandemic for--was that a lot of manufacturers shut down for eight weeks, eight to 10 weeks.

They were shut down.

And when they shut down, they can't make product.

And so then you run into supply chain issues.

And I think people are really looking at their supply chain right now and what that looks like.

Whether they're getting their product from across the United States or they're getting their product from overseas, everybody experienced delays there, which impacted what they're able to manufacture, what they're able to do when it kicked back on.

You know, the RV industry is a great example of that.

Those guys had to shut down for eight weeks.

And during that time, everybody was really getting sick of being at home and inside their house with their kids.

So they wanted to get outside.

They wanted to get in RVs and they started buying up those dealer units that were on lots already, but they weren't able to make ones to backfill those units.

And so they ran to a couple of month delay in terms of getting their product out the door.

And then the suppliers had the same issue so they couldn't get their products from overseas or they couldn't get their products from other places.

And it just created a gigantic problem.

So I think a lot of people are looking at the total supply chain for their business and how it works and operates and the Amazon effect of what we've even seen locally here.

Amazon coming here, Amazon going to Fort Wayne, Amazon doing another million square feet in Fort Wayne.

These big box distribution centers are going to keep growing and they're going to keep going.

And that some of that's going to maybe look like taller buildings, even taller than what we're seeing on the northwest side of town, potentially for for some of those larger players.

But it's also going to look like this is a great spot to be in to get access to three quarters of the United States in a day's drive time.

This is a great spot to be from a distribution standpoint, and companies are realizing that.

And the other piece, I guess to target on that as well is just labor.

You know, the unemployment rate in the state is right around five percent or even here locally, it's under four.

And that's a big deal.

So if you're having a hard time staffing and you're trying to ramp production up or you're trying to bring in more distribution jobs, you need to be in a location where the cost of living is good, like Joe mentioned, but also where there's amenities, where you can get outside, where you can--where you can go to a park and where you don't feel like you're stuck in a downtown apartment or somewhere far away from here.

So, you know, that's just a few thoughts on that.

Great.

Jim, I want to come your way.

Jeremy mentioned the Amazon effect.

And obviously there's a lot of thought that that has influenced retail.

I think I feel like every year that the media does some story about it.

Is the--are these retail districts dead?

Is everybody going to buy everything online?

Will the mall survive?

Different things.

So talk a little bit about, just sort of the the trends there and even lessons that--that we might have learned on the--on the retail side going forward that maybe positioned us to continue to have this vibrant commercial area.

Well, there's not a whole lot of question that it's--it's not going away.

And this huge uptick that that we've seen during the pandemic isn't necessarily going to roll back.

You know, it takes a lot to change consumer patterns and habits and so on.

And--and once--once it starts to head off in this direction, whether it's the Amazon or anybody else, that's the way it's going to kind of keep going.

We've never been a market--I don't think we've ever been a market that's necessarily been overstored.

There are--there are areas of Chicago that I think are going to suffer much worse than we will from a vacancy or reuse perspective.

The mall is--is--is--like University Park, for instance.

It's just too big of an asset to go away.

It's too big of an anchor for the region for it to go away.

You know, I can see the Sears parcel, the entire sixteen acre parcel, however big it is, being completely redeveloped for a multiuse kind of a deal.

There may be some multifamily aspect.

I don't know this, but I can see a multifamily aspect to it.

You know, still, entertainment can still be a big component to something like that.

But it's going to be, you know, it's not going to be another department store.

That's--and that's because department stores were on their way out or suffering anyway.

And the pandemic really is just going to--it's going to be a pretty seismic shift in the long term way.

Some of these assets are going to be used.

It's not going away.

It'll just be it'll be repurposed and reused.

If I could just follow that on.

I can about the retail disruption.

And I think traditionally everybody has thought that the service industry is pretty well immune from those same trends.

Pretty hard to get a haircut by Amazon, right?

But what's--what's happened, though, is the profitability of those stores has absolutely been impacted by the pandemic and changing buying patterns.

So what happens is when people don't get a haircut for eight weeks or ten weeks, they may be inclined to get a haircut less frequently going forward.

And I think same store sales even now are significantly trailing what they used to be.

The other thing is in the hair salon industry, again, an industry you would think would be totally unimpacted by the Internet product sales, the--the mousse or the shampoo or what have you.

That's a significant component of those stores profitability.

And folks have shifted their buying patterns.

And as a result, the--those chains are selling significantly less product because now people are ordering that product online instead of getting it from their salon.

And that's not true just for the quick service change.

But even the high end salons are selling less high end product because people have gotten in the habit of buying their product online as a result of the past year or so.

Sometimes there can be completely unanticipated shifts to even service businesses and their--their business model.

So maybe a haircut gets more expensive.

I'm still not going to get my haircut on Amazon, but--but the revenue model is going to have to change for them.

And some of those tenants will have to change their revenue model or they're not going to be able to afford the rents they've been paying in the past.

Let's just a second and talk downtowns in particular, it seems pre-pandemic, we had some nice success, whether it was Goshen or Elkhart or South Bend or Mishawaka or Niles or Buchanan.

There were a lot of--Plymouth--a lot of great activities happening in the downtown here in our region, whether that be a restaurant or office or different things.

I think people are really interested in their center city and what's happening.

Any post pandemic trends, will some of that downtown interests remain strong or are there things that we should worry about in the downtown area?

Tim, do you want to stick with it?

I was going to say, who wants to jump on that one?

You know, as long as the residential patterns--I think as long as the residential patterns keep--keep shifting and keep focusing in downtown, you know, the need for the services and the need for the amenities, I think is going to continue to be there.

I've been in over the course of the last couple of days.

I've been in downtown La Porte, downtown Goshen, downtown Plymouth.

Don't ask me why, but I've been in a lot of these smaller downtowns.

And the traffic is--is still just huge.

I mean, there's--there's still--there's still plenty of activity and--and there's still things going on.

Now, I'm not sure if it was just a lot of, you know, passing through traffic, that kind of thing.

But--but they were they were busy.

There was a lot of people in those downtowns.

Yeah, I agree.

I think the future of downtowns are bright as long as communities continue to understand the importance of amenities in those downtowns we've seen in South Bend and Mishawaka.

In Mishawaka, I'm doubling down on the downtown.

I really believe in that.

I think they're doing great things with the parks and I think people want to be there.

In the late 70s, early 80s, there was a big question, are the malls in America going to completely empty out the downtowns and kill those downtowns?

And at first it kind of seemed like they might.

But I think over time, patterns have changed.

Housing patterns have changed significantly.

And I really think well managed downtowns where the cities get it and understand the importance of a vibrant retail sector, I think they're going to continue to outperform.

Jeremy, I'm going to come your way we're about four minutes left here, so in our final four minutes.

Jeremy, you mentioned some of the--some of the same challenges that existed, pre-pandemic exist kind of post or during the pandemic, whether the buildings or sites or inventory.

So as we're thinking about sort of moving forward, what are some of the things that we as a community should be doing to--to better prepare ourselves for those opportunities to encourage commercial or industrial office development?

Well, I think the biggest thing we can do is all work together and, you know, that's one of the things that we found out a lot during this pandemic, is that everybody is only a Zoom call away.

And, you know, sometimes when you're when you're running day to day, like we were pre-pandemic just chasing things left and right, you sort of miss the fact that we're all connected and we're all trying to do the same thing for our region, whether that's in north central Indiana here or southwest Michigan.

And just looking at the big picture and what--how communities can work together and not compete against each other.

You know, you and I talked a few weeks ago about the labor force and where labor is coming from, St. Joe County to Elkhart County and what that looks like back and forth between the two.

And I think all that's important.

But it's also important to look at housing and to look at what you're doing in your life.

Like these guys were just mentioning the downtown core, what that looks like, amenities outside, I think focusing in on what we can do together as communities, how we can grow together as communities and how we can be more regional focus is going to make a really big difference and set us apart.

It's going to set us apart for site selectors who are looking at this market and companies who are looking to the market and then just being able to tell the story about what what we have to offer in this region and what we have to offer from the college standpoint, from, you know, young adults and kids and housing in our downtown areas and what-- the amenities that we have and how to sell those amenities.

And then just the way that we can distribute and bring product from--from here to other places in the country and also produce it here and give it to other places in the country.

And being able to talk through that important--is very important, kind of in the growth of the future I see.

Joe, I'm going to come your way to kind of follow up on that question.

So what, in our last two minutes, what--what are the kind of--if there's an elected official watching, if there're community leaders here, what are some of the things the community can be and should be doing to help the clients that you're bringing here be ready to go?

Yeah, well, I'm going to start off by strongly seconding Jeremy's motion that a sense of regionalism should trump everything else.

I really do think that when folks consider our area, they're looking at the entire area.

And so more regional partnerships, I think, over the long haul is what's going to position us best.

The other thing, and I know the Indian Enterprise Center has, for instance, has had some real bumps in terms of community buy-in and things like that.

But I think at the end of the day, getting the entitlements and the zoning in place with appropriate community input is going to be really important because the more you can get things shovel ready and eliminate barriers to potential future development, the better off our communities, all of our communities are going to be to experience future growth.

So anything that municipal entities can do to appropriately expedite those approvals and set the table for future development and be intentional about infrastructure, all of those things are huge.

And Tim, I'll give you the last word on this, on the same thing.

Any--any advice or things as a community we should be doing, in our last 30 seconds here, so--to really position ourselves for for continued growth.

I think it's getting the word out there and selling the community, selling the region.

And I think a big, big way that happens is--is probably increasing the chamber budget, Jeff.

So--.

1072 00:25:14,880 --> 00:25:15,697 This--is this an envelope, Jeff?

There you go.

I'm glad I gave you the last word there.

But gentlemen, I'm grateful for you joining us today.

Thank you for the good work that you're doing and telling our communities here.

And we really appreciate this terrific update on what's going on.

And we'll look forward to having you back in the future.

People really enjoy your insight and kind of hearing about what's going on.

So thank you for taking your time today.

Thank you.

Thank you.

That's it for our show today.

Thank you for watching on WNIT or listening to our podcast.

To watch this episode again or any of our past episodes, you can find Economic Outlook at WNIT.org or find our podcast on most media podcast platforms.

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I'm Jeff Rea.

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Thank you.