Budgeting within the Time of COVID-19

Budgeting in the Time of COVID-19

Your commercial real estate business may be thriving because you took advantage of market change opportunities or you are thinking of ways to counter a market slowdown. In any case, the COVID-19 environment presents budgeting for 2021 with unique challenges.

Since budgeting is usually a mundane process, it's tempting to add 5% to last year's budget and deal with it. This is not recommended in a normal year, and 2020 was far from normal. Even if you've already considered the impact of COVID-19 on your business, it's worth another look. Your ability to anticipate and plan for big unknowns is critical to business success. Let's start with three assumptions.

  • Some market sectors will continue to suffer in 2021 while others are focused on growth.
  • The needs and use of “people space” in a work environment are changing.
  • Efficiency, productivity, synergies, and culture can all suffer from a remote workforce.

Consider the impact of these assumptions on your situation and your market, then determine how you can counteract or capitalize on that impact. Here are a few factors to consider and how they can affect costs or revenues.

Fewer offers, higher conversion rates

Companies that specialize in hotel and retail businesses are hardest hit, as is office leasing, which is slowing down on a large scale. Alternatively, multifamily, warehousing and logistics are doing quite well. While your pipeline may be smaller than last year, there are opportunities in every sector. Tenants looking for space in today's marketplace are serious. The result is higher conversion rates, even with fewer transactions. When planning revenue, consider an obvious impact on your pipeline, but look for new opportunities.

Fewer deals can mean more time for creative property marketing. Shutters can be ideal spaces for small office operations, which are increasingly in demand as businesses avoid large office towers where they cannot control ventilation systems and common areas. In order to find new uses for old rooms, new business networks may need to be established or your services expanded. Plan for the associated costs, e.g. For example, membership in niche organizations, the advanced architecture, or the technical support to create marketing proposals that reflect out-of-the-box thinking.

Due to the limitations of traditional building tours, budgeting for high quality virtual tours for 2021 is a must. Whether you get a contract with a service provider or buy a camera and go the DIY route, expect your costs to be higher than producing brochures. We typically spend less than $ 200 on a simple flyer. It costs between $ 750 and $ 850 to complete a simple 360-degree tour. While a virtual tour may not be ideal for assessing customers' needs and suggesting solutions, assume that your competitors are using this technology and planning the investment.

Short-term leases: stay here

You can open up new business areas in 2021 by responding to the flexibility needs of customers, especially with rental agreements. Understandably, companies are reluctant to sign long-term leases. Placing shorter leases seems like a hit on your income statement (don't expect the normal premium for short-term leases), but renewing a lease every one to three years (versus five or ten) can result in higher fees. In return for the flexibility of the rental period, customers understand or can be informed that the tenant improvement funds and free rental periods will be shortened, making short-term leases more acceptable to landlords.

Change room usage

While most companies don't have a completely remote workforce over the long term, buyers and tenants now see their space needs differently. Organizations that previously wanted 30,000 square feet in one location may now want three 10,000 square feet to better control the number of people in the room and associated systems and amenities like HVAC and high-touch elevators.

Open floor plans with workers will disappear. The average area per US office worker had fallen from about 260 square feet per employee since 1990 to 214 in 2019, according to data from commercial real estate firm CoStar. Expect that number to increase, but don't equate more space per employee with larger rooms. Rather, many employers are planning to continue the work-at-home policy after the pandemic. Others are changing groups of workers in the office on changing days.

While the tenant generally bears the cost of changes to the workspace, property managers can benefit from additional services related to the redevelopment and redesign of the space, especially for tenants who are nearing the end of a lease. A small investment can now save tenants' loss of income that is lured away by offers in a "safer" environment.

Supporting the wellbeing of employees

Budgeting for the wellbeing of agents and employees, especially those working remotely, is critical for 2021. First, consider whether the technology used by remote employees supports efficient work processes and effective communication with each other and with customers. If not, you may need to update software (high-speed WiFi, premium access to tools, cybersecurity) and hardware (new laptops, high-quality microphones, dual monitors). By now you have identified the automation required to manage operations remotely. Think about how advanced technologies can increase efficiency, identify risk, and drive growth, even after you've got that initial hump behind you. New tools can help you reduce administrative staff or redeploy their time on revenue-generating activities.

Also, think about the emotional health of remote workers. The inability to bring everyone together, be it for business or social events, can affect work culture and overall productivity. Consider expanding mental health services as part of your overall service offering and ensure that eligible plan participants are aware of this service. Schedule regular activities to keep the culture alive and thriving without daily personal interaction. This is especially important when adding new team members. Such activities are costly and the provision of funds will help ensure follow-up. The well-being of your individual team members is directly related to the well-being of your organization, so this is not a place to be stingy.

Budget for success

Budgeting with so many unknowns is a challenge. Expect more surprises in 2021. Whatever your "other" line item was over the past year, double it. Address known cost increases and declining pipelines, but consider new market opportunities. Prepare to take advantage of these opportunities by budgeting funds to support business realignment and innovative marketing activities, and positioning your team for high productivity by cultivating a healthy culture that takes employee wellbeing into account.


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