In the months since the COVID-19 pandemic spurred shutdowns across the country, sheltering in place has radically re-ordered our economy as we know it. The traditional business models for many industries, including commercial real estate, have been turned upside down, and the rhythm of our daily lives has been altered in ways we never thought possible.
In Florida, where I’ve lived and worked for the past 25 years, we’ve been spared the worst in terms of virus-related illnesses and fatalities—and for that we are truly grateful. In its wake, however, COVID-19 has taken a significant toll on the state’s economy, where leisure and hospitality had accounted for about 1.2 million jobs in 2019. As I write this, Florida joins many other states in slowly reopening its economy, so it’s appropriate to take stock and look for bright spots amidst this “new normal.”
The importance of Florida’s economic diversity
One of those bright spots is the increasing diversity of Florida’s economy. While the state is perhaps best known for its theme parks, beaches and entertainment venues, the reality is that leisure and hospitality now make up only 14 percent of Florida’s highly diverse economy.
Over the past two business cycles, Florida has been one of the country’s top job creators, and we now have more jobs in the professional services, technology, and healthcare—jobs that were either deemed essential or can be transitioned remotely—than ever before. Construction, a long-time economic driver, was deemed an “essential business” and continued unabated in most of the state, keeping many of the nearly 600,000 who work in that industry on the payroll.
These factors have helped soften the economic blow. Though the current unemployment filings as of late May stand at 1.2 million, we’ve held up better than expected and are stronger than in prior economic downturns.
Examining different asset classes
The disruption of the past two months has given us at Berkadia an opportunity to more fully step into our role as trusted advisors. This entails staying hyper-connected with clients and lenders, being well-informed about various state/municipality mandates that impact property owners and understanding what’s happening at the individual asset level with collections and performance. As we talk to our clients here in Florida, a picture begins to emerge regarding the health and resiliency of specific asset classes.
In the commercial space, industrial has almost universally performed at or above pre-pandemic levels. With the world sheltering at home, last-mile logistics and storage and distribution centers which were already booming have become critically important.
Florida office has also fared better than expected. Rent collections have remained high, and many office workers, though working remotely, have continued to create revenue. How this sector will fare going forward is a matter of some speculation. Many employers, for example, may re-imagine their use of space and “de-densify” if social distancing continues. Florida’s low-tax, employer-friendly environment may also be viewed even more favorably by businesses in densely populated metro areas elsewhere in the country, which could make Florida’s suburban office product even more attractive.
Florida’s hotel and retail sectors face significant challenges, but may be better positioned to rebound relative to other U.S. markets. Florida’s good weather, family-friendly venues (both natural and thematic), and easy drivability from many locations have always made it a favorite “staycation” destination for American travelers.
The retail sector disruption that preceded the COVID-19 crisis has only been exacerbated by it, and outside of grocery-anchored assets, this sector faces the most uncertainty. Here, again, Florida has some potential advantages, as it is home to some of the best malls in the world.
Florida’s multifamily market was one of the strongest in the country entering into this crisis, and so far it has been weathering the pandemic well. Our clients reported May rent collections around 90 percent—on par or just above the country as a whole. The exceptions are assets in markets with a high concentration of renters who are employed in entertainment and hospitality.
Looking ahead with optimism
As other have noted, what’s unique about this downturn relative to ones past is that everyone—to varying degrees—has been impacted. There is a universality of experience that has given rise to unprecedented cooperation, which bodes well for our country’s long-term recovery. For Florida, specifically, resiliency is part of our DNA—it has to be when you live in the hurricane “cone of uncertainty.” I’m confident that our state and its real estate industry will adapt to meet the challenges and opportunities that lie ahead, and hopeful that this crisis will ultimately lead to innovations that improve the quality of our lives, the environment, and the business economies that we work in.