Interview: Frank Baird, CEO, Capital Associates Management

considerations for a safe return back to the office, constant communication between tenants, property managers and landlords has been key in navigating the pandemic challenges. “On the commercial side, we saw a higher rate of delinquency with commercial tenants, and particularly with retail, but not as much on the office front,” Real Estate Associates President Seth Jernigan told Invest:. “We had to work with many of our tenants on providing some rent relief to keep them in the space. The majority of those have bounced back and are living up to whatever rent deferral agreement was put into place. We, of course, wanted to avoid having to take action against the tenants and do whatever we could reasonably do to help them weather the storm. If they were strong as COVID came in, we wanted to work it out and keep all the tenants in place, hold hands and keep things together,” he said. Frank Baird

CEO Capital Associates Management

How have deferrals and concessions impacted the commercial real estate business?

We took an interesting approach early in the pandemic. I think we learned from the experience back in the early 2000s when the dotcom bust happened and we had several software companies that came in and asked for concessions in the middle of their lease term because they were over-extended and in trouble. In our world of office tenants, we have not had a lot of problems. I think we have lost one or two tenants out of about 400-500. Our company has not had to give any rent concessions to anybody. We went through a lengthy process of requesting a tenant to provide us information related to receiving PPP funds, if they implemented a pay cut in executive salaries and other financial information that illustrated financial hardship. By the time you go through all those requirements, it’s probably not worth the hassle of getting two months of free rent or any other rent concession that you would have to pay back anyway. Most of the big companies pushed it a little bit and decided it was not worth the effort. We tried to help those that were struggling but they worked through it as we did. The effect on our business has been very limited.

Where are the emerging areas for commercial real estate in Raleigh-Durham?

During COVID, we have had a lot more biomedical, pharma, clinical research, lab space and life science companies coming to the market than we ever had since I’ve been in the Triangle. It’s mainly occurring west of the airport but other buildings in Wake County are being repurposed for lab space. There’s also the Research Triangle Park, which is re-emerging as a tech leader when I thought it was maybe heading the wrong way five years ago because of lack of amenities and because employees wanted to be in bigger urban buildings Downtown, with restaurants and housing close by. But COVID has changed that dynamic. The suburban office building is alive and well.

The fast adoption of remote work ushered in by the pandemic allows companies and office tenants to embrace workforce flexibility and explore potential costreduction strategies often at the peril of collaboration and mentorship. As such, the post-COVID workforce will likely thrive in a combination of remote and in-person working environments anchored by time in the office.

“There certainly are companies that can manage with a remote workforce but there are a lot who want to be in the office for the intangibles of collaboration, culture, career pathing, training and so forth,” CBRE Raleigh Senior Managing Director Tom Fritsch told Invest:. “Companies might move to a hybrid work model where office hours don’t remain the same but, for the most part, we are seeing that people genuinely enjoy spending time together and like the separation from home and office with some flexibility,” he said.

Industrial and life sciences The pandemic-led shutdowns drove e-commerce consumption to record-breaking levels. For the Triangle’s industrial sector, what was once a rather dormant yet promising sector is now one of the best performing asset classes in the industry due to the rising demand for e-commerce and the frothy life sciences sector. Not only limited to warehousing, distributing and last-mile delivery operations, the industrial sector is also a key contributor to the Triangle’s life sciences ecosystem, all of which help carry the recovery and long-term well-being of the real estate sector.

Amid shelter-in-place mandates and calls to practice social distancing measures, COVID-19 triggered an unprecedented boom in e-commerce, transforming an

Increased demand for industrial space is rooted in the e-commerce and life sciences boom.

Tom Fritsch

Senior Managing Director – CBRE|Raleigh & CBRE|Triad

If you look at the predictions and projections on population growth over the next five to 10 years, it leads me to believe that there will be a greater demand for e-commerce. The Triad, from an e-commerce, distribution and industrial standpoint is also growing exponentially. Their industrial space is approximately 80 million square feet and Raleigh-Durham’s is approximately 57 million square feet.

Raleigh-Durham is ranked No. 5 in the country for life sciences. This industry has been a true shining light for our commercial real estate market throughout the pandemic and we expect it to continue to be a key factor in our future growth.

already growing consumer preference from convenient to essential, bolstering demand for industrial space in the process. U.S consumers maximized e-commerce capabilities in record numbers in 2020. It is estimated that e-commerce sales contributed an additional $105 billion in online revenue in 2020 while accelerating e-commerce growth by two years, e-commerce analyst Digital Commerce 360 reported in June. What was a vital way to buy almost any product has become more than just a temporary solution as evidenced by the continuous growth of e-commerce sales in 2021. In total, U.S. online retail sales increased more than 32% year-over-year in 2020 and rose 39% in 1Q21, the research organization reported, suggesting that e-commerce will continue to drive consumer behavior in a post-COVID world.

The versatility of uses afforded by industrial space coupled with Raleigh-Durham’s growing population and diverse business ecosystem are setting the stage for the growth of the sector in the coming years. “We see three trends in the industrial development space in the Triangle. First is last-mile delivery is going to be required to address the trends in e-commerce and local population growth. Second, industrial assets seem to be offering the best means to address speed-to-market opportunities for life sciences companies looking to establish themselves in the region. Third, is around light or flex industrial. Due to the growing demand for lab space, many flex buildings are being converted, hence creating a very low vacancy rate for smaller industrial users,” ARCO Design/Build Vice President Matt Hohorst told Invest:.

For 2Q21, the overall vacancy rate declined to 3.1%, ( )