Join together to get through coronavirus downturn, say Sonoma County business leaders

Recovery from the current economic reversal and a return to normalcy is possible, if people and business are willing to work together and adjust, said a panel of five business leaders Thursday at the Business Journal’s Impact Sonoma virtual event.

Moderated by North Bay Business Journal Publisher Brad Bollinger, this session -- viewed by 300 registered guests -- began with a keynote by Sonoma State University Economist Robert Eyler, followed by a panel that included Sonoma County Economic Development Board Director Sheba Person-Whitney; Santa Rosa Metro Chamber CEO Peter Rumble; Keegan & Coppin, Inc. Operations Director and Senior Real Estate Advisor Brian Keegan, and Sonoma County Tourism Vice President of Marketing and Communication Todd O’Leary.

Economic recovery will be dependent on government help

“The economy will get better in 2021 but we all will have to make adjustments. The real question is can we sustain a recovery in 2021 by leveraging the socio-economic implications of November’s election results, along with the possibility of receiving another stimulus package in Q4 or early next year,” Eyler said.

“It all depends on the forms of government interventions, such as direct payments versus investments to spur development, the impact of regulations and how much will be spent or saved by households to sustain the business sector and maintain jobs,” Eyler said.

Eyler discussed the use of stimulus funds and how it may change with a second round of disbursements. With the first checks households saved approximately 37%, spent 28% and used about 33% to pay down debt, according to a New York Fed survey of consumer expectations.

This same source predicts that the intended use of potential second-round payments would average 43% for payments saved, plus 22% in unemployment insurance (UI) benefits; 23% spent including 26% from UI benefits and use an average of 30% to pay down debt combined with 48% of UI benefits.

People’s saving money does not affect the economy, only when it is invested or spent by households, he said.

The focus now is more about continued UI claims, which peaked in May but continue to slide down with the coming of fall and winter. Rising business losses could stagnate job growth, though he pointed to an optimistic forecast of real U.S. GDP growth of 3.1% in 2021, after falling 4.3% in 2020 — with continuing increases of 2.9% in 2022 and 2.3% in 2023, the year when the economy is expected to return to 2019 GDP levels.

The economist said the major concern continues to be what will happen over the next five years, assuming that we turn the corner and have a short-lived recession. `

The Commerce Department on Thursday reported that in the third quarter alone GDP grew by 33% as a quarter to quarter change, following a loss of two-thirds of the nation’s output earlier this year. Consumer spending jumped 40% based on receipts from restaurants, shopping malls and other retail outlets.

Some 12.58 million Americans were out of work as of September. The good news is that the rate of unemployment claims is trending down, with the latest report showing 751,000 claims, not 775,000 as expected. The main category to watch is the loss of permanent jobs and people exiting the workforce, which is getting larger, versus temporary layoffs and furloughs. Women accounted for a portion of this decline by having to leave jobs to take care of children not in school.

Data showing changes in employment figures from September 2019 to September 2020 from the California EDD show a decline in Sonoma County’s civilian labor force of 13,100 and a 25,200 drop in civilian employment. Jobs in the leisure hospitality and services sector were the most negatively impacted. These numbers reflect lost jobs, people who left the area to work elsewhere or those who retired.

At the same time, he said manufacturing is coming back, along with construction and the finance industry with the fires increasing demand for real estate.

According to Eyler, another category to watch is whether fiscal monetary policy will to lead to non-residential business investment (which has not happened yet) after four years of negative growth in pre-virus years.

He said the relocation of employees due to fires does not affect effect the economy in the short term, but this could lead to a mid- to long-term effect on demand for real estate. There is also the possibility of fewer people taking the risk to move to Sonoma County – but this has not happened as yet.

Eyler said a key business category to watch is construction, with the housing forecast from Zillow Research showing positive growth of 6.4% in Sonoma County, higher than San Francisco ((5.9%) and Solano (5.8%) but lower than Napa (7.3%), Marin (8.3%) and California as a whole (7.6%).

A significant unknown for the future is how to gauge productivity among those working from home versus those at the office. If a firm’s profitability declines, shareholders and owners may blame those working offsite and call for a return to company space.

‘Move toward an open economy’

Sheba Person-Whitley
Sheba Person-Whitley

“Our focus has been on the entrepreneur and providing support for small businesses. This enterprise sector wants to know where the economy is going. We are providing assistance by phone. So far, we have helped some 800 businesses since the shelter-in-place order that includes helping them understand how we can navigate from one color tier to another,” Person-Whitney said.

“The EDB is utilizing a $2.5 million fund set aside to provide $2,500 to $15,000 grants to micro businesses through our Recovery Task Force.”

She said Sonoma County is creative, but exhausted, due to the compounded effects of COVID-19 and wildfires. Some issues have been heightened by the need for childcare, relocating, the digital divide, telehealth, how to teach kids remotely at home and the need for investments in our community.

“Over the next six months we need a reprieve from disasters and frequent emergencies, and a move toward an open economy with more business activity than before bringing us closer to normalcy.”

She observed that those in Sonoma County have the ability to be creative and shift as necessary. For example, some manufacturers have shifted to producing hand sanitizer, restaurants moved outdoors on sidewalks and parking areas while instituting carryout and delivery models.

“Americans are innovators. The EDB moved to a virtual world and firms have embraced telework options they never thought they would implement.”

‘Great time for tenants to negotiate new leases’

Brian Keegan
Brian Keegan

“We encourage property owners to work with tenants to keep their leases and stay on the good, positive side of the current (slow payment, non-payment or partial payment) issue,” Keegan said.

While vacancies are up, transactions are down in the industrial market that is still strong due to fire rebuilding activity and the strength of the cannabis industry in the region.

At the same time, he said, retail is struggling. Within the office market, a lot of tenants have negotiated rent deferral or forbearance agreements through the end of the year.

“We expected to see activity in subleases, but we’re not there yet. The sublease option is still a possible solution to extend tenant occupancy into 2021, by lowering current rents and extending lease durations,” Keegan said.

He said the SBA’s rent assistance program was designed to cover gaps and loan extensions with landlords, but this program ended in September and he hopes this program will be extended.

“Expect to see more sale listings hit the market,” Keegan said. “There are also election fears associated with the potential for a new tax structure, and additional taxes, meaning some may want to get out of the industrial and office market before the end of the year.

“There are signs of hope. It is a tenant-driven market, and values are up. Some businesses are lowering space requirements as employees are seen to be able to work successfully and be productive from home, meaning it may be the time for some to think seriously about downsizing.”

Keegan said he is seeing small space-cutting deals in the 1,000 to 2,000 sq. ft. range, but less movement in the mid-to-large space categories.

“So far, we haven’t seen big tenants leaving our area. Many are waiting for the dust to settle before making decisions,” Keegan said.

Looking ahead, his company expects to see more vacancies, and more owners advertising space for sale. Keegan said this presents a good opportunity for tenants to think about buying their own buildings with interest rates remaining low.

“Within the industrial market, we’re seeing multiple offers flying off the shelf, which is good,” he said. “This sector is strong. On the office side there are some vacancies, so we expect to see more subleases being negotiated. Again, it is a great time for tenants to negotiate new leases as vacancy levels increase.”

County’s higher level of business restrictions could start impacting tourism

Todd O'Leary (courtesy photo)
Todd O'Leary (courtesy photo)

A 501(c)6 nonprofit organization, Sonoma County Tourism Bureau focuses on the leisure audience and community engagement among the 3,500 tourism-facing businesses in Sonoma County.

“Some 65% of U.S. travelers indicate that they are planning trips during the next six months. These are the people we are trying to reach with our marketing messages,” O’Leary said.

His bureau had to pivot with a decline in flights, especially those to Seattle, Denver and Dallas with the loss of United Airlines service to the Charles M. Schulz Sonoma County airport, to focus more on non-flight services to drive the tourism market in Sonoma County.

“The loss of (United Airlines) was unfortunate, since twice daily flights to and from the Denver area were doing well,” O’Leary said. “Our task involves promoting accessibility to Sonoma County, and the frequency of other attracting visitors coming here from SFO, Oakland and Sacramento airports.

“Historically, our primary focus has been to increase hotel occupancy, but this has been a major challenge this year despite the fact that hotels in our area have been given a green light for tourism since June.”

O’Leary said the tourism agency’s charter is to attract people from outside Sonoma County, but the pandemic has modified this: “We’ve shifted market focus to a smaller radius from home for those willing to come here.”

He said the goal today involves targeting those living within a 300-mile driving distance from Sonoma County – which includes those living in Tahoe, Reno, Sacramento as well as the SF Bay Area, central valley. Sonoma County’s coastal region and the Russian River are among the most popular destinations.

Duiring the COVID-19 era, the bureau looking at business venues set up for outdoor experiences, along the coast, in the redwoods, as well as those living in SF locked down for so long to get a reprieve from congestion to come to Sonoma.

“Sonoma County’s purple health designation, with the highest level of restrictions, could start affecting tourism,” according to O’Leary. “While we haven’t seen this impact just yet, if we don’t move out of the purple to the orange or yellow tiers we could lose ground.”

He said the Sonoma County Tourism Bureau has been competitive and outperformed tourist attraction efforts compared to similar efforts in Napa, Monterey and the Tahoe areas, but as it gets colder, the county could lose its competitive edge.

“The tourism bureau has had to throttle down its marketing efforts cutting back during the Labor Day period in favor of placing emphasis on a spring campaign leading to bookings through the high tourist summer to August period.

The tourism and hospitality sectors have been hit hard during the health crisis, but O’Leary said his organization is finding ways to get out in front of these concerns with its messages, such as “Sonoma County is still open.“

‘Do everything we can to keep our business community here’

Peter Rumble (courtesy photo)
Peter Rumble (courtesy photo)

“Of our 850 members, most are small businesses, but the list also includes larger employers as well. Our goal is to create a more vibrant economy that includes downtown development in Santa Rosa. We conduct surveys to help us keep our finger on the pulse of what is needed to help shape our actions in 2020 and beyond,” Rumble said.

“During the economic slowdown, two banks, Bank of Marin and Poppy Bank, along with the Community Foundation of Sonoma County, raised $120,000 to provide small business grants. Based on recommendations received since March, our members have asked us to spell out ways they can recover and provide a framework for reopening.”

Through the Celebrate Community fund, some $25,000 in grants have been made to keep childcare available. Our Open and Out program was appreciated by 90% of Santa Rosa businesses looking for ways to stay open out of doors.

He said many small firms, like bike shops, are now online. However, one innovative person established a frightening service packaging offering everything you would need to move out of California from buying and selling a home to relocation and job finding assistance for the physical move itself.

“We want to do everything we can to keep our business community here.”

He called for renewal of the Paycheck Protection Program (PPP), eight months after the first program was launched. “Here we are in the 8th month of the shutdowns and when the initial PPP program was launched, it only provided funds for two months, which did not match the ongoing along with the need in the community.

“Today we need an injection of support from local and state government, a medically approved vaccine and the assurance needed to take us light years into the future.”

Rumble noted that for some things, “We are short on having answers as we look back on what we could have done differently as individuals or single firms. Now more than ever we work collaboratively together and help each other.”

The conference was underwritten by Exchange Bank. Redwood Credit Union and Ghilotti Construction Company were major sponsors.

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