Atlas Restaurant Group was pro- jected to generate $85 million of business coming in 2020. Not surprisingly, the novel coronavirus ruinedthose plans.
But as the year winds to a close, CEO AlexSmith thinks 2021 is ripe for growth, withthe recession offering restaurateurs anopportunity to secure management deals inspaces that might otherwise be unattainable.
“There are a lot of developers out there
with big projects still moving forward, and
they’re going to have empty space,” Smith
says. “Now, landlords who have capital
behind them are looking to build out
spaces for restaurateurs to provide traffic
into their developments.”
Currently, Smith is talking to a few
developers about this very topic.
“We’re talking to people that normallywould be leasing space, but are now looking to build out these spaces for a competent operator to come in and run a goodconcept to drive traffic to their development,” he says. Finding capital for restaurants is extremely difficult right now,Smith notes. So, developers’ willingness towork with restaurateurs can be a huge win.
Restaurants that have survived the ravages of 2020 could be excused if they have ahard time seeing the upside in the currentsituation. “Restaurants have been dramatically impacted, and will continue to be challenging with remote working continuinginto the New Year,” says Grant Greenspan,principal of Kaufman Organization.
But if commercial real estate is going tohave a successful 2021 it will require theability to seek out unexpected advantages,such as the one Smith describes.
A NORMALIZED MARKET
As we move into the New Year there is
plenty of reason to feel better about the
industry’s prospects, starting with the
strong likelihood that a vaccine for Covid-
19 is widely expected to be available by mid-
Summer. Also, certain asset classes such as
multifamily, industrial and the life sciences
are well positioned to perform well. The
liquidity that fled the market is starting to
return and year over year transactions are
expected to increase. “What gives me hope
for the year ahead is that we expect the
markets to normalize and for there to be
more certainty in 2021,” says Al Brooks,
To be sure, the recovery will be a bumpy
Urban Land Institute’s Real Estate
Economic Forecast predicts a varied recov-
ery that will begin in 2021 and last through
2022. “The worst fears of earlier this year
have mostly eased,” says William Maher,
principal at Maher Strategies. “As of now,
leading real estate economists are signaling
that resilience and underlying strength will
likely win out over uncertainty and risk.”
The report also predicts that real estate
transactions will also rebound in 2021,
totaling $400 billion in 2021 and $500 bil-
lion in 2022. Next year, the report says,
price growth will remain flat but it should
increase by 4% in 2022.
RETOOL, POUND THE PAVEMENT
None of this is to dismiss the ravages thepandemic has had on commercial realestate and the difficulty that is still facingthe industry. To survive, companies mustseek out those slivers of advantages.
Consider the dilemma facing officebuildings located in central business districts, for example.
Over the past couple of decades, thesebuildings have thrived as tenants andemployees sought out cities’ work-live-playappeal. Then came Covid- 19. Most whitecollar employees were able to work fromhome and downtowns fell silent. Companiesbegan rethinking the role the suburbscould play in their operations.
It is still unclear whether this will be apermanent shift or if companies will choosecity locations again. One argument beingadvanced is that if CBDs and their officebuildings are to survive they need toembrace this new approach to working.
“Owners and developers will need toidentify how to configure a building so thatit can be quickly repurposed for the different uses and types of working demanded byoccupiers, evolving previously homogenoussingle-use buildings into mixed/multiple-use environments,” according to a report byinternational law firm Withersworldwide.“The aim will be to change the utility of aspace within days, so a building isn’t just tiedto a particular usage, or a single occupier.”Grocery stores are another example butin the reverse. As people avoided in-restau-rant dining during the pandemic andstayed at home, grocery stores have beenthe beneficiaries.
But this momentum could be lost unlessthey retool for the strategic challengesahead, according to Bain & Co. In fact, thesector could be facing several challenges inthe year ahead, it argued.
“The dilutive shift to online grocery has
accelerated, and omnichannel leaders are
locking in shoppers to subscription ser-
vices,” according to the report. “Discounters
continue to build stores, lowering prices
and squeezing margins. Consumers still
want more convenience, more value, more
environmental and social impact.
Restaurants—such an easy alternative to
eating in before Covid- 19—will regain trac-
tion at some point.”
Without concerted strategic action, Bain
modeling suggests grocery profits will only
increase 1.2%—from just over $34 billion
to $39 billion–between 2019 and 2030, in
the absence of concerted strategic action.
The problems could start next year. Ifthere is a vaccine, Bain thinks diners couldrush back to restaurants and annual revenues could fall by 4% to 7%. In comparison, grocers posted 2.6% annual salesgrowth between 2014 and 2019.
In some cases, navigating 2021 will comedown to just pounding the pavement looking for needed investors or tenants.
BTI Partners, a developer based in Ft.Lauderdale, FL, is still delivering new