The “new normal” for business is taking a toll. Whether struggling or doing okay, ask any business owner, employer or employee about the future after the three-month roller coaster ride that has been our pandemic summer, and brace for a response tinged with uncertainty.
“We’re actually doing well. We’d be doing better if it weren’t for COVID.”
“Nobody wants to talk about the ugliness too early.”
“The pipeline for our construction company continues to be fairly substantial, but there are questions about whether or not these projects now in planning are going to happen.”
“Everyone’s probably feeling the same as we are. There’s uncertainty about the future.”
At first glance, there’s still an underlying upbeat attitude resonating among the members of the Greater Fort Lauderdale Chamber of Commerce’s Council of Economic Advisors, a group of 23 CEOs, C-suite executives and senior management of companies that represent key industries in South Florida. Despite the pandemic, banking, construction, real estate and professional services remain relatively strong, a likely explanation for the Council’s medium-term outlook in which 87 percent of the members participating in a recent poll say their businesses will see “higher” or “much higher” growth rates over the next two to three years.
Despite the optimism, it’s hard to shake the uneasy sentiment of what may come next. Given the many headwinds businesses face as the year draws to a close, whether it’s the approaching flu season and the risk of an uptick in coronavirus cases, the odds on a new federal CARES stimulus package, the November 3rd elections or the race for a new vaccine to curb the pandemic, the path forward for many here and across the country is cloudy at best.
For example, 69 percent of Council poll respondents believe their 2020 sales in their industries will fall below last year’s numbers, and while most Council members think a recovery will occur in 2021, 43 percent don’t expect to see a return to pre-pandemic levels until 2022 and beyond. It's a similar trend with employment. Forty percent of the respondents say they have less employees working for them today than last year number and another 47 percent expect to have fewer employees at the end of 2020 than they did at the end of 2019.
Still, ‘resiliency’ is perhaps the one word that best describes what echoes throughout the latest council report. The 3rd Quarter Meeting of the Council of Economic Advisors took place digitally on Wednesday, August 30, 2020. The participants included Dan Lindblade, president and CEO of the Greater Fort Lauderdale Chamber of Commerce, Bill Feinberg, GFLCC Board Chair, Richard Clark, CEA Chair and Karen Gilmore, vice president and regional executive at the Miami Branch of the Federal Reserve Bank of Atlanta.
Council members are selected for their expertise, experience and insights into business development, expansion strategies, operational costs and potential growth of key industries in South Florida, which is used to develop and evaluate regional economic forecasts. The Council’s input remains extremely beneficial as the group has accurately forecast our region’s economy for more than 10 years. What follows is the economic outlook for several of the key business sectors in the Greater Fort Lauderdale area.
The federal Paycheck Protection Program has been good to this industry. As routine loan production fell, this government relief package, along with fee income, provided a decent bottom line for area banks. “We lost a fourth of our year with no loan production,” a Council member in the banking said. “That would have impacted us if we didn’t have the PPP.”
Loan demand is rebounding. Banks are lending, although many banks are being more prudent in evaluating loans and the applicant’s ability to repay. Fortunately, the typical 90-day loan deferral, in which a borrower doesn’t have to pay the lender interest or principal on the loan, hasn’t been a problem. At one bank, 90 percent of those borrowers with deferrals are repaying. “We haven’t seen delinquencies or past dues, and that’s been a pleasant surprise,” the Council member familiar with that particular bank told the group.
At the moment, ‘steady’ seems to be the watchword of this important business sector. Despite slowdowns in office and retail construction, the ongoing, long-term projects have buoyed the sector’s employment and payroll numbers. While times are good right now, there is growing uncertainty over if anticipated new projects will materialize or be postponed. “We’re going to be faced with the challenge of coming off major projects with a lot of people and not knowing whether or not if there’s something they can roll into somewhere else,” said one Council member familiar with the industry.
The expiration of federal stimulus payments to help individuals struggling to stay in their homes only adds to the uncertainty. One firm that built and owns downtown property has found success in leasing units, but worries what will happen in the long run, particularly after assistance to help pay rents and utility bills expires. “As federal money runs out, as tenants, particularly younger service employees, start struggling with rents, we might see vacancies,” said one Council member. “That hasn’t happened yet, but it might be coming.”
On a positive note, residential construction remains very strong. After a few tough months, one particular home construction firm has seen a rebound that included the need to hire additional staff to keep up with the work. “We’re probably set for the next six months with projects that are going to start,” the member told the Council. “That’s nice for us to see.”
March and April are usually good times for accounting firms, and this year, even with a pandemic, wasn’t any different. “I feel a little guilty,” one Council member said. “The accounting profession has done reasonably well.” The pandemic actually produced work for this part of the financial services sector. The federal Paycheck Protection Program generated work in interpreting program rules and the forgiveness of the loans. Also, the Internal Revenue Service has revved up its audits and exams, a boon for accountants whose clients are unsure about complying with tax laws. The pandemic did force staff to work remotely, a trend one prominent mid-size firm thinks will continue into the foreseeable future.
Insurance is another part of the financial services sector that has been fairly resilient, depending on the line of insurance served and the size of the firm. Commercial insurance remains strong, and firms that specialize in home improvement and remodeling. Lines involving auto, office and property and tourist and hospitality are still struggling.
The good news first: our area’s health care network dodged two bullets. First, thanks to federal CARES Act money, local hospitals during the past three months continued to function without serious disruption. Hospitals typically earn revenue through elective procedures, which were all but eliminated during the height of the pandemic. Secondly, the virus didn’t overload hospitals with COVID patients, and the current number of hospitalizations caused by the virus is dropping. Another promising trend coming out of the pandemic is telemedicine, which allows physicians and nurses to handle routine visits and certain procedures online instead of through an in-office visit. “Telemedicine has been in healthcare for 20 years and has never been fully embraced,” a Council member familiar with healthcare said. “I think now it will be the way we do things forever.”
Unfortunately, the virus remains a serious threat, particularly with the approaching flu season, which starts in October. Both ailments have similar symptoms, and medical professionals worry that a surge in both flu and COVID-19 cases will put a strain on healthcare. There is also concern about the ongoing supply of protective gear, drugs and equipment. Most of these needs come from foreign sources, a potential problem if those supply pipelines are disrupted amid a new outbreak of the novel coronavirus.
Lastly, and perhaps most important, is the pandemic’s impact on hospitals to attract and retain staff. Labor costs are rising as facilities pay higher wages to bring in nurses from other parts of the country to provide care during the pandemic. “It’s extremely expensive and it creates a disparity between them and our current workforce,” a member told the Council. “It does make our staff want to start traveling. They want to leave, get contracts and get paid on that premium level. So, you end up losing people.” There’s also the problem of post-traumatic stress. “They are starting to question, ‘Do I want to do this anymore?’ ‘Why am I doing this?’” that same Council member said. “They’re watching these very high number of people die, particularly young patients with no underlying illnesses. That’s always a really hard one for people.”
Hospitality & Tourism
First the good news. The sector is showing some signs of revival. According to the Greater Fort Lauderdale Convention & Visitors Bureau, hotel revenue for three straight week-over-week improvement in the number of hotel rooms sold — an increase of six percent since July 25. Revenue per Available Room saw an eight percent increase during that same period. Unfortunately, the industry’s uptick is akin to a rise in pulse rate of a patient coming out of a coma. Many of those hotels are still seeing paltry levels of traffic — as low as 10 percent during the week — and the new visitors are clients from South Florida who aren’t used to staying at luxury hotels. “Our costs are being increased because they really damage our rooms,” a Council member familiar with hotels said. “We’re having to really monitor them closely as it relates to social distancing and the masks. It’s very challenging right now.”
Area hotels are also missing out on revenue from conferences, conventions, and particularly local weddings, a low-hanging-fruit revenue source that has been halted due to the pandemic. It’s an estimated $5 million revenue source that hoteliers hope to convince Broward County officials to allow them to pursue with appropriate social distancing restrictions. With the normal traffic of business travelers, conventioneers, international tourists and visitors from out of state, the impact on employment is frankly devastating. “For our hotel specifically, I will lose 200 associates over the next 90 days,” a Council member told the group. “For the industry in general, I’ve heard anywhere as low as 20 percent up to 50 percent reductions.”
The news isn’t great for local tourist attractions, restaurants and live-event venues, either. The lack of tourist traffic combined with recent cancellations of events like Christmas on Las Olas and the 2020 Winterfest Boat Parade have prompted one-time area hot spots to curtail operations, lay off employees or shut down entirely. “I woke up, got out of bed and pretended that I was open this evening,” said a Council member whose restaurant and lounge has been reduced to simply takeout. “I know it’s a lie, but the frame of mind is what counts, right?!
The uncertainty of the times is a boon for prominent law firms, particularly those that deal with labor issues. As one Council member put it. “I can tell you our own firm nationwide and in our local office that we are the fortunate ones that we work in a space that we are providing advice to employers that are trying to navigate these issues.” With the exception of work involving the retail and hospitality sectors, lawyers are working hard to help their clients with the new normal of complying with employment laws and accounting for business loans enacted under the federal Paycheck Protection Program. It is a busy time. Several of these law firms are meeting their standards, employees who were once furloughed or moved to part-time status are now back fulltime and pay cuts have been restored.
Collections, however, is the new challenge — some firms reporting work on their collection rates are down between 20 and 25 percent. “It’s going to be a tough year for collections,” another Council member told the group. “All firms are encountering that.” Some law firms are also beginning to re-think leasing office space after months of having their legal staffs work from home. What began as a forced experiment is now standard operating policy that several law firms and other businesses believe will help their bottom line.
If there is one sector that kept it moving during the height of the pandemic, it’s this one. Manufacturers were deemed “critical” businesses, and they were also buoyed by longer-term work orders. In many cases, the virus itself helped generate new business as manufacturers pivot to make products to address COVID-19. It’s a trend many hope will lead to even greater production after the pandemic. “As far as sales, we’re down maybe 5 percent but we kind of transitioned over to customers who have Covid products,” said one Council member. “We’ve been making air purifiers that seem to be killing the virus. That’s been huge for us.”
If there’s any bad news, it’s the virus’s impact on supply chains. The movement of materials and other products needed to complete projects has slowed to the point where it is delaying the completion of orders. As one Council member put it: “We are telling our customers to expect an additional week and sometimes two weeks if you want to be careful about your lead time. The supply chain is suffering getting products to their customers.”
South Florida is the yachting capital of the world, and boating is one activity people can do without the worry crowded attractions about COVID–19. Both factors are keeping the region’s marine industry in a strong economic position, despite the impact of a devastating pandemic. “There’s a lot of jobs and a lot of money,” said one jubilant Council member. “We’re still going good.” Boat sales are up. Boat use is strong, and fuel is relatively cheap. Business at boat repair and maintenance shops remains brisk — 90 percent for boatlifts and 90 percent for propeller repair. The demand for skilled workers, particularly in the industry’s boat repair sector, is at the point where poaching is driving up labor costs.
If there is one dark cloud on the horizon, it’s the upcoming Greater Fort Lauderdale International Boat Show, an event that last year brought in roughly $715 million in sales and a statewide economic impact of $1.3 billion, according to event organizers. The novel coronavirus pandemic has shuttered several South Florida events, which has prompted the Boat Show organizers to upgrade the event’s safety and social distancing precautions. If COVID-19 forces the Boat Show’s cancellation, it would have a devastating impact on both the marine and the hospitality industries. “It’s really important that it happens,” a Council member representing the industry told the group.
The mantra “Location, location location” is proving to be an effective buffer for this important sector. Demand for residential real estate remains strong, thanks primarily to ongoing interest of people wanting to live in Florida in general, the Fort Lauderdale area in particular. As one Council member put it: “The big advantage we have down here is that people are still migrating down here. There is still very strong demand.” Investments also seem to be picking up, albeit cautiously. The trend on investing in major apartment and condominium developments seem to be ‘next year’ instead of end of 2020. Still, the overall outlook for residential real estate development is upbeat, but different.
It's a more mixed bag on the commercial side. Retail and certain hotels continue to be a drag in the sector. The new normal of working from home has curbed demand for office space. Land costs remain high, zoning issues can be difficult and financing more challenging. The slow rebound of government services that normally help developers process projects has also hurt. “I expect government will take a significant hit and look at budget and staff cuts, and that will affect business,” said another Council member. “Isolating government as something separate from business just isn’t productive.”
The COVID-19 numbers may be dipping, but retail continues to face major head wins, either struggling to adjust to an altered business landscape or file bankruptcy and shut down their operations. South Florida seems particularly hard hit with the closing of such prominent stores, like Apple and the bankruptcies of landmark anchor stores, like J.C. Penny, Lord & Taylor and Neiman Marcus. “Stores are bringing back minimal employees — what they need to survive basically — operating on modified hours,” said a Council member familiar with mall operations. “That’s the indication I’ve gotten from our anchor stores. That’s how we set our hours. I don’t see that changing before the end of the year.” Upscale malls have also seen tenants scrambling to re-do their leases, and in many cases, these changes are accepted to keep spaces in malls from becoming vacant. One Council participant familiar with these modifications described one area mall losing up to $2 million in revenue because of leases that may keep retailers afloat but pay malls less money. On the other hand, there are potential tenants looking for space to rent, but landing new tenants has become more difficult given the increasing number of vacant spaces popping up in malls and other commercial properties.
One bright spot: several restaurants inside malls have survived, despite limited hours of operations and social distancing requirements. Helped by federal initiatives like the Paycheck Protection Program, a number of people who still hope to get into the restaurant business and the creativity of veteran restaurant owners to adopt to the new normal, the numbers of restaurant failures have been better than expected. Overall, it’s the ability to change in selling to the public, such as curbside pickup — that will help retailers survive the pandemic. “The showroom floor will become just that, a place where you can see what they’ve got and you can fulfill the order online,” a Council member told the group. “So, it’s definitely changing.”
Utilities continue to wrestle with the economic impact the pandemic has had on its customers. While disconnections have been suspended, the numbers of collections over 90 days is up over the pre-pandemic period. Fortunately, the federal CARES Act provided money to assist tenants to pay their utility bills, which allowed utilities to be flexible and work with their customers to establish payment plans. “So, that is not as negative as most would think,’ said a Council member familiar with the sector. “People are able, with the funding and with payment plans, kind of work through their arrears.”
Energy sales are up slightly over this time and the number of new accounts also increased — both good signs are obviously an indication of growth. Hiring continues to be favorable, too, as job opportunities in utilities are available in bargaining, general employee and professional staffs. The biggest impact on this key sector has been in healthcare. Utilities remain ‘critical business,’ which means the health of installers, linemen, technicians and other critical employees is essential. All this results in higher healthcare costs, whether it’s for masks and social distancing signage or money spent on anti-body and internal COVID testing.