A coalition of trade associations, including NAIOP Hawaii, have joined forces with businesses and community leaders to develop a National Commercial Rent Survey that will illustrate how coronavirus-related closures have affected the U.S. economy, particularly the impact of accumulating commercial back rent and the  outlook for rents moving into 2021.

Dr. Eugene Tian, Chief State Economist for the State of Hawaii Department of Business, Economic Development and Tourism, is administering the survey. Participation is anonymous and the data will be aggregated for privacy. The Center for Housing Economics and Island Business Management, LLC, will publish the final report that will be available for download in January 2021.

Market Share asked Ryan Tanaka, president of Island Business Management LLC, to discuss the survey and goals. NAIOP members are invited to participate in the survey, which closes on Dec. 30.

Q: Why did you launch this survey?

A: The National Commercial Rent Survey will help us better understand the economic impact from restrictions named in various levels of government. We’ve been looking around the country and we see that many people are still struggling – and this all ties back to the commercial landlord-tenant relationship. Reduced capacities reduce income, which makes it difficult to pay rent. The unbearable burden of back rent piling up, coupled with future rent obligation, is one reason why businesses are closing. We’re already seeing the ripple effect.

We’re only about halfway through this pandemic. We’ve learned from two Hawaii surveys in July and October that a significant part of the market – around 40% – has been disproportionately impacted. These are sectors that rely on consumers physically walking in and buying something. Restaurants, retail, entertainment, hospitality and their supply chains have all been affected. Businesses are leaving Hawaii and others are failing, so we’ve been trying to make a strong case for how commercial rent relief is necessary to keep these parts of the economy alive. The National Commercial Rent Survey will allow us provide recent data to our government leaders. Without help, businesses will close and may not come back. This creates a downward spiral. Unemployment then goes up and tax revenue goes down.

Q: What is the critical role of federal relief and why is it important to commercial real estate?

A: Richard Koo, the chief economist from Japan at Nomura Research Institute, visited Hawaii and advocated to pump government stimulus money into the economy. He said, “If we don’t do this, the whole thing can come crashing down.” This was in 2010, three years after the 2008 recession had already begun.

During the last few months, Jerome Powell, chair of the Federal Reserve, has stated that monetary policy is not enough. We need fiscal stimulus directed to small businesses to prevent an economic meltdown. Every article and report points to economic devastation and the need to save small businesses so that employees have a job to return to when the pandemic subsides. 

Commercial rent relief addresses the most pressing need facing our economy. State and county budgets have been hit from a precipitous drop in tax revenue due to government-imposed lockdowns. We took the hard data that we aggregated from the first two local surveys and presented it to state and county lawmakers to help them consider allocating federal CARES Act money towards commercial rent relief. Honolulu City Council supported, through unanimous approval, Resolution 20-208 which urged city administration to establish a commercial landlord-tenant grant program.

Current city administration was only able to provide some relief using CARES funding. Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) have helped but the results of our first two surveys show despite financial relief currently available, one in four businesses still expect to miss full rent from now, through the rest of the year. Additional federal stimulus is needed to inject liquidity back into local economies to save businesses and protect jobs.

Q: What have you learned from the previous two surveys, conducted only in Hawaii?

A: The business outlook is grim. Over 80% of businesses expect revenue to decrease this year and also in 2021.

During the last six months:

• 40% have not paid rent in full and 10% have not paid rent at all.    
• When government restrictions began in March, thousands of businesses went into hibernation. These businesses continue to burn cash every month. On top of that they may still be expected by their landlord to pay rent in full.
• Only 11% received rent reductions from their landlord

Moving to our forecast period from October to December, the survey revealed:

• One in four businesses expect to miss full rent from now, through the rest of the year.
• Only 5% were able to restructure their lease.
• Rent restructuring is important because it allows businesses and landlords to set new expectations.
• One in three businesses face extreme hardship going forward.

From discussions with our mainland partners, we expect the national survey results to show that Hawaii is really just a microcosm of the kind of needs that exist at a macro scale across the country.

Q: What are some of the groups working together on this initiative?

A: Because the survey started in Hawaii, most of the groups behind it are based here. The National Commercial Rent Survey is a public-partnership with Island Business Management LLC; The Center for Housing Economics; the State of Hawaii Department of Economic Development and Tourism (DBEDT); Chamber of Commerce Hawaii; Hawaii Restaurant Association; Retail Merchants of Hawaii; Hawaii Food Industry Association; Hawaii Lodging and Tourism Association; and the Hawaii Executive Collaborative. Many banks (First Hawaiian Bank, Central Pacific Bank, American Savings Bank, Bank of Hawaii, Aloha Pacific Federal Credit Union, HawaiiUSA Federal Credit Union) are also involved.

NAIOP Hawaii is one of the original contributors, and we are in the process of solidifying partnerships with National Restaurant Association, National Retail Federal, U.S. Chamber of Commerce, the International Council of Shopping Centers, and others. We are grateful to NAIOP [the larger North American organization] for the support!

Q: How can NAIOP members participate in the data collection?

A: All NAIOP members (business owners and operators) are invited to complete the National Commercial Rent Survey, which is open through December 18. The survey will ask you to identify your zip code for location purposes, and it should take no more than a few minutes to complete. Results from the survey will be available in January 2021.