The March issue of Naperville Magazine featured Calamos Real Estate SVP Ken Witkowski on his views of the commercial market post-Covid.
We spoke with Witkowski too, and he expanded on the insights published in the magazine. Here's what our resident real estate expert had to say:
Outlook overview for 2021
The suburban Chicago market may be pleasantly surprised by companies looking for options outside of the city offering great amenities – workout facilities, food options and ample parking – in safe communities. Counties like DuPage have historically supported good commercial real estate tax policies. Our brokers at Calamos Real Estate see companies looking in the suburbs, wanting a Chicago-area presence without challenges big buildings present, especially for a post-COVID environment.
CoStar, among the most comprehensive real estate databases in the country, shows approximately 7.9M SF, 23.2% of which is currently listed as vacant in the Naperville office market. Emerging from COVID, building owners can expect businesses looking for space closer to home, not in large deals like those experienced “BC” – before COVID – but in smaller offerings. Owners will need to aggressively review their financials to right-size base rental rates, ultimately helping everyone within the competitive market set.
The "equalizer"
Hospitality and retail can expect challenges in 2021. COVID has become the new version of Samuel Colt’s peacemaker pistol, i.e., what made all men equal in the Old West. It’s an equalizer that has impacted lives worldwide. Travel restrictions and infection fears have reduced year-over-year hotel occupancies by roughly 70 percent. Restaurants have been equally hard hit with seating and capacity restrictions. We own Hotel Arista, Che Figata and CityGate Grille. Our operations have gone far beyond maintaining service standards and operating margins. Hospitality now is about enhancing safety and taking care of employees and patrons. Like all restaurateurs, we have been pivoting with our business to pay our bills.
Surviving restaurants have opportunity in increased market share as restrictions are lifted, but also must consider the level of contingency funds to maintain in the event of a future Black Swan. Robust cleaning standards are a mainstay. Supplemental technology to make buildings safer is quickly becoming an added incentive for leasing space. Calamos Real Estate installed deionization systems in all its buildings over the summer for an added level of protection. The systems produced by Global Plasma Solutions™ work within the buildings’ HVAC to neutralize contaminates in the air beyond those addressed by the various filtering systems situated throughout our properties. People are eager to get out, they just want to do it is the safest environment possible, myself included.
Office properties supporting professional services have been stable. Medical, financial services and technology operations, working remotely, or in a hybrid on-site/remote work model have been able to pay their bills. Corporate operations that previously required high-capacity office setups, such as those utilized by call centers, are changed indefinitely. Until we really have a handle on COVID, return to traditional work environments will be slow. Meaningful legislation that offers protection to employers should an employee contract COVID at work also would be helpful.
Is remote work here to stay?
Mass telecommuting or working remotely makes sense right now. However, for many companies I really do not believe it will sustainable beyond COVID. As children go back to school and restrictions on dining, travel or other life functions are lifted, many employees can be able to work from home at their convenience, whereas now they work from home out of necessity. I expect that once the pandemic is over remote working will create a myriad of issues for human resources, from personnel seeking reimbursement for home internet and electrical expenses, home office expenses and other items that might be covered if the employee were in the office to costs associated with travel if an employee is required to attend routine meetings at the office. Many employees now believe they can perform their jobs remotely form anywhere and may not feel that they have to live in proximity to the office for their job. I believe future performance, more so than expense, will most likely be the factor that determines the fate of working remotely.
Companies will still need office space; their needs will just be smaller. The suburban market is in great shape to provide space within modern, efficient, multi-tenant buildings. Small spaces in quality buildings are in demand, especially if there is limited expense associated with overhead. Calamos Real Estate recently repositioned a master suite within our building at 2135 CityGate Lane in Naperville to provide 29 sub-suites, many approximately 200 SF in size. Tagged our CityGate Flex offerings, they provide office space for small business owners with an attractive gross rental rate that includes expenses like electricity and furniture; options for phone and internet service are also available. The gross rental rate allows the business owner or entrepreneur to forecast operating expenses based upon fixed monthly pricing. We went live November 1; to date we have just four or five units available.
We also operate Primacy Business Solutions, which offers virtual office and virtual assistant services, in addition to entrepreneur offices and even meeting room and Day Office rentals. As businesses re-evaluate their needs, we expect a demand for these types of services to grow.
Is the outlook any different for Naperville and the Western Suburbs?
The western suburbs have done a great job in developing a market that has reached global prominence. Cities such as Oak Brook and Naperville are referenced immediately behind Chicago. DuPage County has facilitated good commercial real estate tax policy, this is very important for businesses as many local administrations struggle in finding ways to deal with budget shortfalls. The City of Naperville has highly detailed, fair policies and practices when it comes to development. My experiences with DuPage County and Naperville have always been above board – a refreshing concept in today’s political climate.
I hope that the various governmental entities within DuPage County and Naperville continue to attract development opportunities that will complement current developments and businesses, and help maintain property values. It’s a difficult balance as new business ventures seek support while similar longstanding Naperville businesses struggle to survive.
The Post-COVID opportunity
Even with all the challenges in 2020 it will be a year that I remember in a positive light. The worst of times can bring out the best is people. In 2021, we need to continue shopping local, supporting small businesses, helping service workers and just being good neighbors. We have the opportunity to let this moment be something that defines the best of our community.