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 to not take a closer look at what happened in commercial real estate.
The roots of Apto were born out of 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 commission-only career. The recession gave him the time and space to reevaluate and adapt and build something that commercial real estate brokers really needed to conduct their business.
2020 was also a year of reflection and adaptation, 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 industry’s future.
Question: Broadly speaking, what did you observe over the last year? What sectors did well? What sectors suffered?
First and foremost, I want to take a moment to acknowledge all that has happened since March 2020. Right around this time last year, I sent out a message to our customers and the brokerage community offering some words of support and resources that might be of help. Before I address the business side of all of this, I want to acknowledge that the last year was anything but easy. Many lost family and friends, their jobs, and faced new physical and mental obstacles. In talking to my connections in commercial real estate, whether Apto customers or friends, I found some comfort and silver linings in this industry’s ability to adapt and learn. I hope for everyone, 2021 brings positivity, health, and happiness, both personally and professionally.
Getting into it, I’ll start off by saying industrial is really strong, and the distribution side is what’s really driving that. Think about the dramatic increase in demand for goods purchased online (like through an Amazon, for example) and the need for big warehouses to store/supply those goods. Anything that supports e-commerce has led to a huge industrial boost. Re-shoring is also another reason why industrial is doing well. Although the legislation that worked to bring a lot of manufacturing back to the US was passed before the pandemic hit, COVID-19 definitely helped speed up the process.
Multi-family has been stable. Retail has been a mixed bag, but largely the sector didn’t fare well. Needless to say, a lot of stores and restaurants suffered during the early days of the lockdowns, and many were forced to close their doors permanently and vacate without much hope for a new tenant moving in. For those that survived, they got by with setting up online ordering or offering food delivery/takeout options.
Traditional office is hurting. Coworking and flexible office space isn’t doing great, but there’s a business model there for the future (we’ll get into this later).
Question: From what you saw, how did commercial real estate brokers and brokerages adapt to the challenges brought forth by the pandemic?
More than ever before, brokers saw the need to invest in technology. They needed a way to foster collaboration across teammates while working from home and not being able to be together in the office. You could no longer swing by your colleague’s desk to remind them to copy you on a follow-up email or send over the latest marketing materials for a property. In talking to our customers, they said it became a lot more important, even necessary, to have a CRM to manage all of these moving pieces from home. Client communication and meetings were all conducted virtually for a long period of time as well, further enforcing the need for softwares like Zoom, Slack, Microsoft Teams, etc.
I shared this sentiment with our prospects and customers at the start of the pandemic and lockdowns, but the commercial real estate industry is tough. A lot of us already made it through one financial crisis, and I knew that same grit and tenacity that got us through 2008 would get us through 2020 and beyond. While it goes without saying that the last year has been incredibly challenging, it’s also been eye-opening and has created new opportunities for us that we wouldn’t have otherwise found.
Question: Let’s talk about some emergent trends when it comes to coworking/flexible office spaces. What does the future look like for that sector? What about fully remote work as it pertains to CRE brokers specifically?
I think the future looks bright for coworking and flexible office spaces. “Thanks” to the lockdowns, the cat’s out of the bag that you don’t have to be in an office to do a lot of jobs anymore. People have gotten a taste of flexibility and want more of it.
However, at the end of the day, commercial real estate is all about relationships and ultimately a business that does rely on facetime. And while people have enjoyed the flexibility and option to work from home, people are also anxious to get out of the house and have the occasional change of scenery. Having a nice piece of real estate or office to meet people in lends some credibility. That being said, having an office space that supports a lower capacity or flex working is a trend that’s probably here to stay, even in commercial real estate.
Question: What about the impact of the COVID-19 pandemic on commercial real estate technology?
As I mentioned previously, the COVID-19 pandemic made a lot of brokers realize the need to invest in CRE tech. A slowdown in transactions in a lot of sectors has created the space to investigate 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.
Aside from CRMs, there’s been a lot of interest in softwares that fall under the larger prop tech umbrella. Take virtual tours, for example. The technology has been there, but the interest was small. 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 sense of what you like, similar to looking at pictures of houses on a platform like Zillow. FastOffice has been doing really well, and the pandemic has kept that momentum going.
Touchless or keyless access to buildings is also likely here to stay, even after we stop the social distancing and obsessive hand washing and using hand sanitizer. Openpath is one such software that has done really well. Tenant engagement platforms like Lane and HqO have helped landlords bridge the gap between physical and digital workplaces to create the best possible tenant experience. In general, rent and economic pressures on buildings are forcing owners to think about efficiencies across the board.
Question: There was a lot of M&A activity in the technology sector over the last year. Was the pandemic the cause, or did that just accelerate the momentum of M&A activity that was already underway beforehand?
COVID-19 squashed a lot of business plans and caused companies to run out of money. And with widespread lockdowns and everything going virtual, a lot of startups weren’t able to fundraise as they had hoped. Then the options left were close your doors, or get acquired. So I’d say that the pandemic just accelerated a lot of things that were already in motion. I feel like every week there’s been an M&A announcement.
At the end of the day, liquidity is strong. There is a lot of private equity and venture capital money sitting out there, and prop tech is an attractive investment.
Question: Let’s talk about Apto specifically. How did the pandemic shift or inform your strategic planning for the company?
All in all, I would say our business hasn’t changed dramatically and we’ve fared well through the pandemic. While we’ve seen some churn from businesses that were previously healthy, a larger push for new people coming into the top of the funnel that are interested in evaluating tech because they now have the time to do it balances out the scale. While I can’t get into much detail, our product roadmap does reflect some tools and features that are better suited to a virtual work environment.
On the personnel side, we moved more towards a flex working model. We’re a company of 30 people now renting out office space for 20. We don’t do any onsite selling anymore and have adjusted our sales and support motions to be fully virtual. We adjusted capital planning accordingly and were more thoughtful about how we spend our resources to be able to make it through a slower time that we saw in 2020. Like many companies, the pandemic gave us the time and space to take a closer look at our own internal operations and processes and make strategic adjustments for the future, and 2021 is already off to a strong start.
Question: Broadly speaking, what are your predictions for commercial real estate at large as you’ve had time to reflect on the last year? And what about for CRE tech specifically?
There have been a lot of cultural shifts over the last year that are going to make their way back to commercial real estate eventually. From to-go cocktails, to on-demand and virtual education, and everything in between, brokers are going to feel the effects of these changes on how they do their jobs and support their clients. I don’t ever see (or at least not in our lifetime) the role of the broker going away completely, but the way a broker provides services is certainly going to change. It already has, after all. And I have seen overwhelmingly positive changes that have resulted in increased efficiencies and better client communication and engagement. Whatever unprecedented event has happened or will happen in the future, brokers have always and will continue to adapt.
In general, prop tech adoption, innovation, and investment has been a loud drumbeat for years, but it’s gotten a lot louder in the last couple of years. Following the COVID-19 pandemic, I believe we are going to see the rubber meet the road and a spike in adoption and investment in technology from the usual laggards.