Thursday, July 23, 2020

What The Results Of The NH Business Resiliency Survey Mean For Commercial Real Estate

In June, the University of New Hampshire Survey Center worked on behalf of the NH Small Business Development Center to conduct a survey of over 1,500 small businesses in New Hampshire. The survey was distributed through over 50 business organizations throughout the state, and the highlights can be found here The questions asked in the survey were specific to the economy and COVID-19.  

We wanted to share our thoughts on the results, as it impacts commercial real estate.  Let us start with the more empirical data from the survey, as questions relating to a business owners belief or concern can be heavily swayed by many subjective items.

Employment is a key driver of real estate consumption. For office space, a full time employee will need 200 to 300 square feet of space in an office environment, though there is less of a clear correlation in the retail and industrial markets.  In February of this year a similar survey noted that all businesses in the data set averaged 22 employees, while the June survey resulted in 18. However, a positive sign is that the decline in employment was centered on only 40% of the businesses surveyed.

The suggestion from this correlates with the essential/non-essential data. Just over half of all of those surveyed were deemed non-essential. These were a wide range of retail, hospitality, and some service businesses.  It remains to be seen, but it appears that the steep decline in employment was centered on the non-essential businesses within the retail facing world. Largely speaking, office employment appears to remain steady. 

In addition to employment data, the survey also drew inference on businesses ability to meet their other commitments, such as paying rent. Close to half of all businesses surveyed claimed their revenue dropped by 50% or more. What is alarming is a majority of the businesses surveyed were unable to defer or modify any payments to vendors, such as landlords. Clearly this would create a huge imbalance that is not a surprise to anyone.

To reclaim these lost revenues, businesses sought new funds from various services to meet obligations.  Of the relief programs supplied by the Federal Government or the State, the Payroll Protection Program was utilized by 60% of all of the businesses, the Main Street Relief was used by about 40%, and the Economic Injury Disaster Loan was used by about 25%.  To get into the numbers, it appears that food service and hospitality were more likely to take out the EIDL Loans or the Main Street Relief Funds. These are the same businesses who were more likely to have their employees go onto unemployment while their businesses were deemed non-essential.

More subjectively, a majority of business owners feel that the NH Economy will recover within the year. But, business by business, there is concern about the forthcoming changes. A strong majority see work from home being a key focus of their business planning, along with changing a physical location. The data does not go into more specifics, but it is clear that we all are looking at ways to be more flexible with our space. It remains to be seen if this translates into a lower demand for office square footage.

Of note on the retail side would be that close to two thirds of all respondents see the need for curbside pickup and the same amount for delivery. In a practical sense, what will that mean for civil engineering moving forward? Do we need new lanes and parking spots to accommodate the quick in and quick out that these concepts demand?

The data is always to be taken for the snap shot it is. Commercial real estate is slow moving, as leases, purchases, and developments take time. It remains to be seen how these statistics will impact the details of the commercial real estate deal.

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