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3 things leaders must do to seize opportunity in a post-pandemic economy

Source: Vistage

“The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic,” wrote Peter Drucker, revered as the father of modern management.  

Using logic based on the new economic realities, I would like to review the changes we’ve seen in the economy recently and propose three actions that you, as a business owner, should take to prepare for success in a post-pandemic economy.

What the economy will look like post-pandemic

To begin, let’s review two premises about the economy.  

There will be an Economic Reordering

The current economic crisis will give way to a period of adjustment and recovery. In this period, which I term the “Economic Reordering,” the U.S. and foreign economies will change dramatically. 

The rosy-fingered dawn of the emerging business landscape will possess both the familiar and unfamiliar. Globalization, for example, will not end but it will be modified, with huge implications for trade and supply chains.Free guide to help lead your company through challenging times.

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There will also be a new bias for domestic production. Countries will recover from the crisis at different times and in varying degrees of economic strength. Consumer buying patterns will not simply revert to what they were before the pandemic; they will develop in new ways and be affected by new demands and offerings. Many undercapitalized businesses will be swept away by stronger competitors. And there will be dynamic changes in taxation and regulatory frameworks. 

The Economic Reordering provides new opportunities for entrepreneurs (and we all must be entrepreneurs now)

The complex interlocking market system will be fundamentally reorganized in the Economic Reordering. There is, and will be, disorder and dislocation. The alert and capable leaders will create order out of chaos by discerning and responding to market shifts.

My premise is based on the renowned economist Professor Israel M. Kirzner’s insight that, contrary to the popular image of the entrepreneur merely as a disruptive force, the entrepreneur’s true role is discovery and correction of market misalignments. I suggest the current economic turmoil will inevitably create and magnify these misalignments. Consequently, I believe, there will be both significant hazards and huge opportunities for entrepreneurs. 

How to take advantage of the post-pandemic economy

Leaders should respond to the market disorder by being alert to, and seizing, the opportunities that will inevitably be created. To do this, you must do three things: Assess economic changes, examine yourself and reimagine your business.

1. Assess economic changes

As noted in the premises above, business in the Economic Reordering will be influenced by structural economic changes and timing differentials. In considering your positioning, you should assess at least the following:

  • Extent and length of the economic disruption 
  • Nature of the recovery (u-shaped or v-shaped)
  • Rate of recovery in your sector
  • Permanent changes in your sector (for example, to buying patterns and supply chains)
  • Availability of cash, lending and investment in your sector
  • Workforce availability and suitability
  • Effect of geography
  • Effect of size of companies in your sector (for example, larger companies may receive more government assistance or have more access to lending and investment)

Above all, consider your customer composition and assess how their behaviors will change. Certain businesses, for example, will experience results according to the age groups they serve (a gym with an older clientele may suffer more than one with younger customers), while others will see uniform growth as age group behaviors converge in adapting to the new environment (e-commerce will benefit from older people becoming accustomed to buying online).

Never forget that the consumer is sovereign — ultimately, the consumer drives the economy. 

2. Examine yourself

In the Economic Reordering, America will see itself anew. In turn, ask yourself these questions:

  • What are your goals?
  • Are you prepared to rebuild your business? Do you have the passion and drive to recreate your business model?
  • Do you have the family support and stability for the arduous work?
  • Can you access the necessary resources (talent, money, etc.)?

In essence, you must decide whether your goals, talents and resources make you more or less likely to succeed in the Economic Reordering. If you do not want to restart your business, consider alternatives to sell in whole or in part. Don’t try to muddle along. Commit or get out!

3. Reimagine your business

If you decide to rebuild, do not merely tinker with your business model. Do not try to fit your business into the future predicted by forecasters. Do not focus on just bringing back employees and restarting prior operations. Instead, be alert to fresh opportunities that others have not yet seized. 

Be the entrepreneur you were when you began your business. Reimagine your business!

Once you have done this, realign the business to your new vision:

  • Focus on new markets and strategic alliances
  • Retain and recruit employees who will advance the new business model
  • Reevaluate customer and supplier relationships 
  • Optimize your debt and equity structure to accord with the new strategies 
  • Evaluate new technologies 
  • Shed assets that are no longer mission appropriate 
  • Direct spending and investment to the reimagined core operations 
  • Identify and mitigate/seize upon new vulnerabilities from supply chains, regulation and customer mobility 
  • Communicate the new vision to all constituencies (employees, customers, suppliers, lenders, investors) 

Remember, the essential laws of business do not change. Basic human needs and nature are immutable. Ludwig von Mises, the economist who changed our understanding of entrepreneurship, wrote that core economic principles must be obeyed as laws of nature. I suggest that the genius of the entrepreneur lies in coupling these immutable economic principles with an innovative and robust spirit. 

Final thoughts

You succeeded as a business owner prior to the current economic crisis. You can thrive in the Economic Reordering by entrepreneurial decision-making and action. Assess the economic changes and decide whether you want to rebuild your business for the new era of change and challenge. If you do not want to restart your business, consider alternatives to sell (in whole or in part) or merge. If you want to rebuild, be alert to the opportunities that will inevitably arise and reimagine your business in order to take advantage of them.

Above all, avoid the trap of “yesterday’s logic.” It’s a new world.

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A capital markets update

Source: Vistage

As the U.S. slowly reopens and the rate of new coronavirus infections increases, many CEOs of small and midsize businesses are wondering how to navigate the next six months and how to position their businesses for life after the crisis. Dr. Adrian Cronje, CEO and Chief Investment Officer at Balentine, joins Vistage Chief Research Officer Joe Galvin to discuss aspects of the economic road to recovery, including:

  • What the capital markets are indicating about the likely shape of a recovery over the next 18 months
  • Longer-term trends likely to affect businesses
  • Ways to ensure your business is poised to benefit

Walk away with tools to monitor the messages that capital markets send about the future economic environment and how you can use those indicators to manage your overall balance sheet.

Read the full article here.

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Sim Doughtie, President of King Industrial Realty, quoted in ‘Industrial Sector is in Good Health’

Source: Industrial Sector is in Good Health

With millions of Americans working from home amid the pandemic and generally staying away from large group settings, industrial demand for e-commerce has only picked up. Online sales in June 2020 comprised 29.6 percent of all retail sales, according to the U.S. Commerce Department, nearly double that of June 2019 (15.9 percent).

Minneapolis-based Target reported that during its first quarter, which runs from February 1 to April 30, its digital sales grew 141 percent compared to first-quarter 2019. Union, New Jersey-based Bed Bath & Beyond, while announcing a 49 percent decline in overall sales, said its digital sales grew 82 percent in its first quarter, which ended May 31. Additionally, the National Retail Federation (NRF) and Prosper Insights & Analytics released their annual household survey of back-to-school shoppers. Of the 7,400 respondents, 55 percent said they plan to do all of their back-to-school shopping online, which is up from 2019 (43 percent).

Americans shopping online for clothing, household items and especially food has driven the industrial sectors throughout the region the past few months.

“Retail and office got hit pretty hard by the pandemic, but industrial continued pretty strong because of e-commerce,” says Sim Doughtie, president of King Industrial Realty Inc. in Atlanta. E-commerce retailers such as Seattle-based Amazon and Walmart have been at the forefront of the industry since the beginning of the COVID-19 outbreak in the United States, with each company hiring thousands of employees to keep up with online shopping demand.

In mid-March, Bentonville, Arkansas-based Walmart pledged to hire 150,000 workers in a six-week span at its stores and distribution centers. The company met that goal two weeks early and then pledged to hire another 50,000 employees. Amazon has been announcing fulfillment centers and delivery stations across the Southeast, with new facilities slated to go up in Mt. Juliet, Tennessee; Little Rock, Arkansas; Charlotte, North Carolina; and Suffolk, Virginia.

In the Tampa area, e-commerce players are entering and expanding in the market as well, says John Dunphy, managing director in JLL’s Tampa office. According to research from CBRE, the East Tampa submarket absorbed nearly 1 million square feet year-to-date. Additionally, there is 2.3 million square feet under construction in the Tampa Bay area, with a vast majority of it being for thirdparty logistics (3PL) companies and e-commerce use.

Amazon recently acquired 82 acres in Temple Terrace to develop a new warehouse. According to media reports, the property, which is located 10 miles northeast of downtown Tampa, sold for $26.4 million, and Atlanta-based Seefried Properties will develop the facility. Furthermore, Ace Hardware is expanding its ecommerce capabilities by developing a 315,000-square-foot facility in Plant City, 25 miles east of Tampa. “E-commerce growth has been across the board in Tampa, which is a dynamic of a very healthy market,” explains Dunphy.

Similarly, Doughtie says Atlanta’s fundamentals have impressed him given the state of the global economy during the second quarter. Atlanta saw nearly 6.3 million square feet of absorption in the second quarter, almost 1.8 million square feet more than the first quarter of this year, according to data from King Industrial Realty.

New construction dipped by about 2 million square feet quarterover-quarter, but of the 4.5 million square feet in new product, 80 percent was speculative, suggesting developers are bullish on the health of the local industrial market from a demand standpoint. 

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Zinus USA pledges $108 million investment, 804 jobs in McDonough

Source: Atlanta Business Chronicle

A subsidiary of South Korean mattress and furniture maker Zinus Inc. picked Henry County as the site of its first North American advanced manufacturing facility, pledging to invest $108 million and create 804 jobs.

Zinus USA Inc. President Ha Bong Sung said Tuesday alongside Gov. Brian Kemp the company will develop the facility in McDonough and expects to open in the first half of 2021. A Zinus spokesperson said she “cannot disclose further details” about the facility’s location.

Kemp’s office called Zinus’ investment one of the state’s largest since the start of the new fiscal year.

Zinus is hiring for positions focused primarily on mattress production, in addition to roles in facility management and administration.

The home furnishings company has a presence in 20 countries and plans to continue growing its international footprint in the coming years, according to the release. Zinus has several distribution centers across the U.S., but its manufacturing facilities are located in Indonesia and China.

Zinus, known for infusing natural ingredients including green tea, olive oil, and charcoal into its mattresses and home furniture, sells its products to major retailers including Walmart, Amazon, Wayfair and Costco.

“As we continue to grow into new markets and expand our own vertical integration capabilities, establishing our first-ever production center in the U.S. is a critical step in our evolution as a global business,” said Keith Reynolds, president at Zinus U.S., in the release.

Final terms of incentives for Zinus have not been agreed on, according to the Associated Press. The AP also reports Henry County is likely to abate property taxes and that the company will qualify for a state income tax credit.

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Moody’s Analytics Q2 Report Gives Mixed Picture on CRE

Article from Globe St.

The current pandemic has affected most aspects of the commercial real estate industry, but a Moody’s Analytics report says some sectors have been hit much harder than others.

Moody’s looked at the impact on several categories in the second quarter of 2020 including industrial, warehouse and distribution and flex/research and development.

The data, Moody’s Analytics said, “show that the industrial sector was mixed in the quarter as warehouse/distribution held up better than other property types as e-commerce sales continued to grow throughout the pandemic.”

The report says that flex/research and development space “saw the biggest jump in vacancy in the quarter, more than any other property type.”

With regard to the industrial sector, the report says the impact of COVID-19 will “come at a lag.” The report says that’s so, primarily, because there is a consumer shift to online purchases that have been “supporting the sector in the interim.”

On the warehouse and distribution front, the data says, there was little if no change on those statistics.

Construction, the report details, fell to a low of 16.1 million square feet in the quarter. That, the report says, is from 30.2 million square feet of new warehouse space added in the first quarter and an average of 31.6 million square feet of new inventory added per quarter in 2019.

A real poor performing area that was hard-hit by the now five-month old pandemic was occupancy growth related to rents. The report said: “Alongside weak construction and occupancy growth this quarter, the average asking and effective rents grew 0.1% and 0.0% respectively, in the second quarter. This was also the weakest since 2011, but, it was nevertheless positive which was surprising given the extremity of the shutdown.”

Flex/research and development, Moody’s Analytics reported, didn’t fare well and “suffered the steepest decline in occupancy of any property type…. This scant growth corresponded to an inventory growth rate of 0.03% while the occupancy decline was 0.38%.”

Depending on where you lived, rent growth in flex/research and development space varied.

Raleigh-Durham, North Carolina saw an increase of 280,000 square of new completions in space in the second quarter, while suburban Virginia saw an increase of 92,000 square feet.

Twenty-six metro areas in the country saw an effective rent decline in the second quarter of the year led by Houston, Jacksonville, Los Angeles, Seattle and Fort Worth, Texas,

On the other hand, metro areas with the highest effective rent increases in the quarter included Columbus, Ohio; Miami and Fort Lauderdale in south Florida; suburban Virginia; and Phoenix.

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Exploring CBRE’s Midyear Market Report

Source: National Real Estate Investor ( CBRE provided NREI with an early look at its Global Real Estate Market Outlook 2020 Mid-Year Review report. )

The COVID-19 pandemic rages on, with the U.S. remaining one of the worst-hit parts of the globe. Other nations have contained the virus or are dealing with more isolated outbreaks. There’s no clear end in site for the crisis. The global economy remains gripped by uncertainty and hobbled by measures necessary to contain the spread of the virus. 

It’s in this context that CBRE is releasing its Global Real Estate Market Outlook 2020 Mid-Year Review report. As it did with its 2020 Real Estate Market Outlook, CBRE has provided NREI an advance look at the report. The slideshow walks through the firm’s observations with interactive versions of the charts published in the report.  

All told, CBRE’s conclusion is that the rebound for commercial real estate will lag that of the overall economy, with recovery in most commercial real estate sectors expected to start this year and continue through 2021. The firm foresees the industrial and logistics and multifamily sectors bouncing back more rapidly than other sectors. The acceleration of the shift to more e-commerce will boost industrial and logistics, while overall demographic trends will push more people to rent apartments, boosting multifamily fundamentals. 

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Amazon, Walmart, fuel industrial real estate occupancy across Atlanta

Article Source: Atlanta Business Chronicle, Biz Journals

While uncertainty continues about demand for office space in the Covid-19 world, developers of Atlanta’s industrial real estate projects seem bullish about their future.

Keep on building.

Majestic Realty Co. is the latest developer to announce a new project, a 1.15 million-square-foot speculative building in Union City near Hartsfield-Jackson Atlanta International Airport, the world’s busiest. Majestic adds to the more than 21 million square feet of industrial real estate projects under construction in Atlanta, the fifth consecutive quarter activity has remained at that level, according to Colliers International.

Amazon and Walmart are driving much of the new occupancy, Colliers said.

Amazon alone leased 3.7 million square feet in the past three months. Amazon’s new leases bring its total fulfillment center network to at least 13 million square feet across the Atlanta region, almost doubling its size from the end of last year.

Majestic was a beneficiary of that rapid expansion. Amazon leased at least 500,000 square feet at Majestic’s Airport Center IV project, according to market intelligence. The firm did not release the name of the company behind the new lease at “MAC IV.”

Amazon is building-out the infrastructure of its same-day delivery network, with fast-growing population centers such as Atlanta and cities in Texas and Florida seeing most of the new activity.

Walmart may also explore ground-up development in Atlanta, sources familiar with the market said. For now, it’s ramping up its own real estate expansion in north Georgia. It recently leased just over 1 million square feet at Valentine 85 Logistics, a project owned by Hillwood Development Co. near Pendergrass, Ga. The project is about 45 minutes northeast of downtown Atlanta.

Georgia’s construction boom for new warehouses is a microcosm of bigger trends across the country.

“In the Covid-19 era, e-commerce is fueling industrial demand more than ever,” according to real estate giant CBRE.

As e-commerce accounts for a larger share of overall retail sales and same-day delivery networks continue to expand, the activity should provide a short-term buffer to a more severe economic downturn. Across the Atlanta metro region, other companies such as Facebook, Boeing Co. and Mondelez Global are also moving into new warehouse and data center operations.

In Union City, Majestic says its new spec building will be called MAC V and should be finished by June 2021. It’s the fifth phase of Majestic’s 12 million-square-foot portfolio in the I-85 South corridor.

Stan Conway, executive vice president of Majestic Realty, said, ““By moving forward with this speculative project, we are reinforcing our commitment to the submarket despite current uncertainties in the economy.”

Link to article

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Booming E-commerce Sales Drive Demand for Industrial Facilities

Source: National Real Estate Investor

Acceleration of online shopping during the COVID-19 lockdown has made companies more risk-averse in their inventory management strategies. Concerns about running low on ordered merchandise is causing a shift from “just in time” to “just in case” logistics strategies. Now, firms are increasing stock at facilities near customers to ensure timely shipping in case customers order more than anticipated. 

While this new logistics approach is still in its infancy, Greg Healy, senior vice president, supply chain solutions & workforce analytics, with real estate services firm Colliers International, says “It’s impact on industrial real estate is nothing but positive.”

The increase in online shopping was happening prior to the quarantine, but the pandemic accelerated it, Healy says., For example, in 2018, 29 percent of Nordstrom sales were online, he notes, which is equivalent to sales at 146 stores, and six percent of Target’s sales were online, which is equivalent to sales at 122 stores.

Omni-channel retailers are downsizing bricks-and-mortar space and increasing their focus on online sales, but because customers no longer come to them, their biggest challenge is reducing the high cost of transporting products. As a result, retailers’ highest demand will continue to be for space at infill distribution facilities, according to Healy. But the need for resilience is also increasing demand for regional warehouse space where large quantities of consumer goods are stored.

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Investing in Industrial in the Post-COVID World

Source: NAIOP Commercial Real Estate Development Association

When the COVID-19 pandemic struck the U.S. earlier this year, it was unclear what the effects would be on industrial real estate. But nearly six months into the crisis, it appears that the sector has been more resilient than others, according to participants in a panel discussion during I.CON Virtual 2020 on investing in industrial properties in the wake of COVID-19.

“I don’t think we’re immune to what’s happened, but we’ve held up well,” said David Fazekas, a senior managing director with the Black Creek Group.

The panelists agreed that an explosion in e-commerce activity at the height of the pandemic, when much of the country was under stay-at-home orders that curtailed consumers’ ability to shop, is a major factor behind that stability.

“Accelerated adoption of e-commerce was definitely a positive trend of the pandemic,” said Michael Coppola, a partner with Bluewater Property Group. “E-commerce has changed our industry. We’ll all be attuned to how much of that sticks.”

Stephanie Rodriguez, vice president of leasing and development with Duke Realty Corp., said online sales accelerated much faster than she expected during the pandemic.

“The e-commerce increases we’ve seen in the last few months have been astounding,” she said. “In this short amount of time, we’re outpacing where we thought we’d be in three years.”

Along those lines, panelists noted that demand for industrial space held up well during the crisis, and e-commerce giant Amazon is a major reason. The company added about 175,000 employees at a time when more than 30 million Americans were out of work.

“The space that is coming online is getting gobbled up by Amazon,” Coppola said. “That’s certainly going to help rent growth.”

Opportunities and Markets

Coppola said that his company, which is focused on the Northeast, will continue investing in that region.

“These Tier-1 infill markets are insulated from long-term trends that COVID-19 is not going to change,” he said. “COVID has only accelerated a lot of those trends. We don’t see anything in the way of distress, unless it’s a one-off like a retailer or someone with liquidity needs. We’re in a bit of a wait-and-see period now. Buyers are being appropriately cautious right now.”

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The Future of Industrial Real Estate and Logistics Systems

Source: NAIOP Commercial Real Estate Development Association

The design and constructability of industrial projects has changed immensely over the past decade, alongside growing e-commerce demand, population density and trends like grocery delivery. Kim Snyder, president, U.S. West region at Prologis; Jinger Tapia, principal, design at Ware Malcomb; Brook Melchin, senior architect/director at Riddell Kurczaba; and Robert Murray, senior vice principal at Alston Construction, discussed emerging trends in industrial development at this week’s I.CON Virtual 2020. Their conversation addressed a range of topics including design trends in new buildings, potential models for mixed-use buildings, and adapting to autonomous vehicles and increased automation within buildings.

Building Design

Murray provided insight into recent trends in industrial buildings that are likely to continue in the near future. In general, buildings are getting taller, with 40-foot clear buildings now commonplace and 48-foot clear buildings increasingly entering the market. Taller buildings are also becoming more common in last-mile facilities located close to dense urban areas. Robotics and autostore systems are increasingly common, increasing building throughput. However, automated systems and HVAC systems also sometimes require the installation of additional sprinkler systems and have contributed to buildings’ electrical requirements. Murray observed that new buildings with automated systems frequently require the installation of three or four transformers and large backup generators to ensure that systems can remain in operation during a power outage.

Space usage at a site is also beginning to shift as many facilities, especially those in the last-mile category, increasingly accommodate additional parking for delivery vans and workers. Conventional buildings are still being built with 50-foot bays to service truck deliveries, but buildings increasingly use truck queueing systems to allow more on-site space to be devoted to parking. Murray said he has also seen a trend of moving offices to the center of a building. Buildings are increasingly being designed to accommodate different future uses of space.

Tapia also noted ways that buildings are being designed to be more flexible and identified design elements that can allow for more efficient use of space. For example, to accommodate a future change of use, designers can ensure that a wall that is initially designed for truck docking is not load-bearing so that it can be reconfigured or moved.

Tapia also outlined potential approaches to making a large buildings “more efficient on smaller acreage of land, closer in to the buyers who are looking for delivery.” These include the potential of placing loading zones in a central corridor along the middle of a building instead of at a building’s sides, and surrounding each side of a loading zone with mezzanines and vertical lifts.

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