Woodbury Corporation, owners of University Place mall in Orem and several other malls, hotels and businesses had a rollercoaster year in 2020.
Danny Woodbury, director of leasing with Woodbury, reports on how they weathered the COVID-19 storm and what they have learned through a worldwide pandemic that may help other retailers.
“Our business is based on a simple assumption — that people will leave their homes to work, shop, play and travel,” Woodbury said. “For the first time in our 101-year history, this assumption failed.”
Woodbury said May was the worst month on record in a variety of metrics.
“Our hotel occupancy was in the single digits and nearly 40% of our retail tenants failed to make their rent payment,” Woodbury said. “Our property management and leasing team have been overwhelmed by rent relief requests and notices of tenant bankruptcy.”
As the pandemic ravaged the country, Woodbury said he was continually surprised that their commercial leasing activity never dried up completely.
“It slowed to a trickle in April and May, but then showed bursts of activity by the end of the summer,” Woodbury said. “Leasing continued to ramp up as we reached 1.3 million square feet leased, the most in our company’s history.”
How this happened is still a bit puzzling to Woodbury, but there are a few key trends and factors that have clearly played a role.
Here are few of Woodbury’s observations:
Business are making decisions assuming that conditions will improve
“There has been a lot of talk that retail is dead and office workers will work from home forever. Our recent experience during the pandemic indicates otherwise,” Woodbury said.
For example, Northrop Grumman made the decision during the pandemic to make Utah a regional headquarters for its nuclear missile program and hire thousands of new workers, Woodbury noted.
Woodbury is constructing their new headquarters.
“We recently signed a lease with a 150,000-square-foot tech tenant who plans to open its new headquarters building next year that will be a signal to its employees to return to the office,” Woodbury said.
Woodbury said he has spoken to dozens of CEOs and heard a resounding theme that they want their workers to return to the office.
“These business managers feel productivity has decreased and that keeping workers in the office is necessary to maintain their company’s culture,” Woodbury said. “The exceptions have been large companies who have satellite offices locally. We’ve seen several of these offices opt to permanently work from home and close.”
This behavior makes perfect sense, according to Woodbury.
“These satellite offices were already removed from their headquarters and did not benefit from the collaboration and cultural activities that employees at headquarters enjoy,” Woodbury said.
Similar behavior is appearing with retail tenants.
“Every week we sign leases with new retailers that are anxious to expand into our Mountain West markets,” Woodbury said. “We’ve even seen a recent surge in activity from sectors that have been crushed by COVID, such as sit-down restaurants, bars and fitness groups.”
Tenant performance has been extremely uneven
“It’s surprising to many that from July to December the sales in our malls have been roughly the same on average compared to last year. In our Idaho mall same store performance actually saw double digit increases!” Woodbury said. “Most people understand that the pandemic has pummeled certain tenant sectors such as movie theaters, gyms and sit-down restaurants. However fewer have realized the pandemic has been an enormous tailwind for others.”
Woodbury said they have sporting goods retailers in their portfolio whose sales have doubled in 2020. Home improvement, beauty, drinks and fast foods have seen similar increases, he noted.
“We’ve observed that a success-defining factor has been the adaptability of each tenant,” Woodbury said. “For example, we observed a sit-down restaurant chain whose sales plummeted by 60% in April and May. This group then rapidly adjusted their business to adapt to COVID.”
They simplified their menu and created to-go packages catering to family dinners. They developed an online ordering app and created a virtual drive-through in their parking lot. By September, their sales were back to pre-pandemic levels, according to Woodbury.
Meanwhile other groups either sat idle, cut staff or closed for months. These groups have suffered.
Mountain West states are poised to out-perform other regions
“The Mountain West economy is showing encouraging signs of resilience,” Woodbury said. “Many states in the region are leading the country in a variety of economic and demographic metrics.”
• Population growth: New data from the U.S. Census shows that three Mountain West states lead the country in population growth in 2020, including Idaho (No. 1), Arizona (No. 2) and Utah (No. 4).
• Unemployment: According to the U.S. Bureau of Labor, Utah has the fifth-lowest unemployment rate (4.3%) followed by Idaho in 12th position (4.8%.)
• Business vitality: States in the region have created a supportive business infrastructure that has fostered significant job growth and entrepreneurship.
• Home prices: The mini exodus from large coastal cities to the Intermountain West is driving home prices through the roof in some areas (low interest rates are also helping). According to Redfin, a real estate brokerage website, Idaho has seen home prices increase by 20.2% in 2020. In Utah home prices increased by 17.8%. This trend is particularly acute in areas with access to the great outdoors such as Summit County (home to ski town Park City), where home prices have increased by a whopping 67% this year.
“We’ve been lucky,” Woodbury said. “Woodbury’s success in leasing is due to some genius strategy on our part, but many of the positive trends above are largely outside control.”
Woodbury said there are a few things the company has done that have clearly helped including:
• Staying open: “We have made a concentrated effort to stay open, both at our corporate headquarters and at each property,” Woodbury said.
Under Utah health guidelines, Woodbury was categorized as an “essential business,” and never closed its corporate office, according to Woodbury.
“We also did everything in our power to keep our properties open. Our mall in Utah was one of only a few in the entire country that never closed during the pandemic,” he said.
• Getting creative: “In several instances COVID caused disruptions that we turned into opportunities,” Woodbury said. “For example, we also own an outdoor advertising/billboard company which also saw advertising cancellations and vacancies in the early months of the pandemic. We then targeted a few struggling retail tenants in our shopping centers and gave them free advertising on our billboards which caused their sales to jump.”
When the biggest national leasing convention was canceled this year, Woodbury then hosted its own virtual convention highlighting properties to generate activity, Woodbury said.
• Becoming experts on government stimulus programs: Woodbury said a huge economic-boosting factor was the government stimulus programs.
“As these programs rolled out, we directed our legal and property management staff to learn everything about these programs,” Woodbury said. “While most of these programs did not apply to a company like ours, this knowledge didn’t go to waste. As our phones rang off the hook from tenants asking for rent relief, we then educated these tenants on all the stimulus programs they could apply for directly. We also worked out rent relief packages with many struggling tenants.”
While there were some great financial moments, Woodbury said 2020 brought its share of carnage. But, he added, the net impact of the trends above has been a major bulwark for the company’s business.
“While a number of tenants failed this year, we’ve filled the holes as quickly as they have appeared, and the occupancy of our commercial portfolio has remained flat,” he said. “We believe commercial leasing is a leading economic indicator, which paints a positive impact for the future.”
As Woodbury Corporation closes the book on 2020 and embarks on 2021, the family-run business is optimistic about what lies ahead.