Show Local Businesses the Love
by Bill Milliken
I run a full-service commercial real estate company that provides leasing, sales, tenant representation, and real estate consulting services.
For building owners and businesses in our cities, this is a challenging time. Things are quiet. We all look back on 2008–2009, the height of the Great Recession, as a low point—but it wasn’t this low. I live downtown in Ann Arbor, and I’m very aware of the reduced pedestrian traffic and street traffic. The biggest reason is that the University of Michigan is operating at dramatically reduced levels.
The return of students to the classroom will make a difference. But I see long-term change in office space. The amount of vacant office that we have now is high, and, according to Bisnow’s commercial real estate newsletter, 59% of businesses in offices are contemplating a reduction of their square footage based on this “new” phenomenon of working from home. Several clients have come to me saying they’re simply not coming back to their offices. We’ve listed their space for sublet trying to find users.
It’s hard to know how this will play out. I’m part of the Real Estate Answer Forum, a group of brokers, attorneys, and commercial real estate portfolio managers in the Detroit metro area. On a recent Zoom call I learned that DTE, a big public utility here in Michigan, had a 60,000-square-foot office up for renewal, and they walked away. A year ago their intention would have been to renew. On the other hand, one Detroit broker shared a story of a Fortune 500 company that doubled its space. Being in the office is central to their culture, so they want to be able to conduct business in the office while maintaining social distance.
One way to retain tenants may be to offer reduced rent lease extensions. But the best tenant retention tool is simply to have provided the highest level of tenant service during the term of their lease. Send Easter lilies. Build tenant loyalty. To move vacant office space today, you may have to discount asking rents by 25%–30%, maybe even offer an attractive tenant improvement allowance for the right lease term. Then there are always trade outs: Provide rent breaks to tenants in exchange for goods or services.
The most important thing local governments can do is to avoid making things worse. Avoid regulatory hardship during these times. Seek ways to help small retailers and restaurants keep their doors open. Increased costs for our businesses and property owners at this time would be the epitome of bad timing. The biggest thing the federal government can do is promote vaccinations. Normalcy won’t be back until the pipeline is filled and people feel safe going back into shops and restaurants.
Until then, we all need to do what we can to support local businesses. Last week, I went out to dinner, on a winter’s night, for the first time in months. We were seated in a tent dressed in parkas and hats. It was fun but not something I could have imagined a year ago. This local restaurant is a third-generation family business. Everyone would grieve if they didn’t survive.
Bill Milliken, CCIM, CIPS, is broker-owner of Milliken Realty Corp. in Ann Arbor, Mich. (population 120,000), located 45 minutes outside of Detroit. He served as Michigan REALTORS® president in 2013 and National Association of REALTORS® regional vice president in 2017. He currently chairs the board of trustees for Washtenaw Community College and serves on the board of New Detroit, a racial justice organization.