Can the business of ERRCS thrive in a Post-Covid world? Our answer: Yes, but it may be market-specific.
In our neck of the woods (San Francisco Bay Area), the commercial real estate market is clearly not thriving. From a recent New York Times article about San Francisco: “The city has the highest office vacancy rate of any large American city. Asking rents for retail spaces have dropped 21 percent since before the pandemic. And even as tourists are visiting San Francisco again, the amount of money they spend in the city is 23 percent less than it was in 2019.”
The current office vacancy rate in San Francisco is 30 percent, as opposed to 4 percent before the pandemic. Nationwide, commercial vacancy rates average around 17 percent. San Francisco’s Tech-heavy tilt and it’s liberal work-from-home policies have certainly exacerbated its vacancy rate. Overall, the markets with the largest share of remote work have also seen the highest spike in vacancies (e.g., Denver, Seattle, Austin). With large vacancies come a reduction in new construction.
In general, as new construction goes so does ERRCS. Of course, these systems are not simply installed in office buildings. Local codes typically will require multi-family residential buildings over a certain size to be tested for an ERRCS. And then there are the hospitals, hotels, schools and other specialty buildings that need an ERRCS. For a detailed analysis of vacancy rates and building trends by market see CommercialEdge’s National Office Report: https://www.commercialedge.com/blog/national-office-report/.
The fact is that other than Florida, most state and local codes around ERRCS only apply to new buildings. Markets that recover quickly from the pandemic and see an uptick in construction (everything other than single family residential) should see a healthy demand for ERRCS; markets that don’t recover quickly will not.
This may just seem obvious and I’ve wasted 280 words to get here. Perhaps. But some takeaways:
- Larger electrical and life safety companies with a state-wide or national footprint will clearly follow the construction dollars and ERRCS will be a good, additional source of add-on revenue.
- Small, specialty ERRCS integrators should allocate marketing dollars (i.e., Google Ads) to markets they can service with low vacancy rates that seem to be recovering.
- Integrators that exclusively service markets that are lagging should engage with local governments to encourage them to enact policies that encourage a quick return to pre pandemic economic levels. Call this your self-interested civic duty.
- ERRCS integrators should encourage AHJs to be judicious in terms of increasing code and integrator requirements that result in more expensive systems. Most developers and owners simply see ERRCS as an additional code-required cost. Those of us in the business need to push back on well-intentioned code modifications that result in increased costs.
If you’re still with me, I congratulate you. If you’ve got an opinion on steps those of us in this ecosystem can take to grow the pie, please shoot me an email.