This issue looks at the latest trends across the commercial property markets (multifamily, office, industrial, and retail) and features two pieces on the hotel sector and cap rate trends. The hotel sector has been struggling the most compared to other industries, but on a positive note, less than 2% of businesses have closed. Across all property markets, cap rates have remained relatively stable even as T-bond rates have fallen, but expect an uptick next year with the distribution of the vaccine and a slight rise in overall yields.
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Source: “December 2020 Commercial Market Insights“
Archives for 2020
Grocers, Home Goods and (Yes) Gyms Will Be the Top Retail Performers Next Year
Grocers, home goods stores and even one fitness company are among the retailers well positioned to tackle 2021.
Placer.ai has released its forecast for the best performing retailers in 2021. Some of the names on the list are no surprise, like grocers and home goods stores, which have both benefitted during the pandemic. Others are a surprise. Planet Fitness, for example, landed a spot on the list, as did indoor malls. These retailers, according to Placer.ai data, are well positioned for strong performance next year.
Traditional grocers Albertsons, Kroger and Publix have all had a strong 2020 with visits up from January through November 5.3%, .7% and -1.7% respectively. Isolating for June through November, all three chains had an increase in visits. In addition, the duration of visits increased 7.1% on average for all three brands, which Placer.ai says is typically an indication of larger basket size.
HomeGoods, At Home and Tractor Supply are driving performance in the home goods retailer category. At Home visits were up 25.9% from June to November, while HomeGoods had an average 6.7% year-over-year increase in traffic from July through November. Tractor Supply visits increased 14.6% from January to November, impressive considering January visits alone were down 3.4% year-over-year. It is worth noting that Home Depot and Lowe’s are not included in this list because they led the same category for top retailers in 2020, and we not eligible for the repeat title.
While it isn’t surprising to see these retailers make the list after the banner year that they have had, Planet Fitness and top tier indoor malls have also made the top-retailer list for 2021. This year, Planet Fitness had increased year-over-year foot traffic in January and February. Stay-at-home orders forced the brand to close, but visits have started to rebound in October and November, showing the potential for rapid recovery once doors are reopened. In addition, the brand never saw the extreme drop-off in visits that other fitness brands did. The industry standard this year was -70% in visits, while Planet Fitness remained in the -30% range.
Indoor malls are perhaps the most surprising addition to the list. However, Placer.ai was encouraged by the jump in mall visits during the holidays. For the week of Super Saturday, mall traffic was down only 29.9%. In addition, pent up demand for shopping spaces, an evolving mix of retailers and more owners embracing the retail evolution all spell good news for the future of malls. Placer.ai says that these trends have the potential to trigger a surge in the retail sector in the coming years.
In addition to these retail segments, Kohl’s and Dollar General also made the list of Placer.ai’s forecast for the top retailers next year.
Source: “Grocers, Home Goods and (Yes) Gyms Will Be the Top Retail Performers Next Year“
The US Economy Struggles as Asia Rebounds
Countries that have done a better job of managing the pandemic are already deep into economic recovery.
The US could be on the brink of slipping back into a recession. Along with Europe, the US economy has struggled during the pandemic, and surging outbreaks this winter have only added more stress to the already vulnerable market, according to Mark Zandi, the chief economist for Moody’s Analytics. On CBRE’s podcast The Weekly Take, Zandi discussed the current state of the global economy and gave his outlook for 2021.
“At this point in time, the US and global economies are struggling,” Zandi said on the podcast. “The surging pandemic, the intensification of infections, hospitalizations and deaths, is doing some damage, some real damage, to the economy at this point. And I think I would go so far as to say that the economy is at risk of backtracking here and going back into recession.”
Zandi noted the recent unemployment data as one example of the weak economy. In early December, there were 853,000 new unemployment claims, an increase of 137,000 from the previous month and the highest number since mid-September. “Now that’s weekly data and it bounces around quite a bit week to week, but I think it was a pretty definitive increase and is consistent with the weakening economy and job growth we saw for November,” adds Zandi.
The country’s handling of the pandemic is the root cause for these economic woes—and it isn’t only the US. The resurgence of coronavirus cases has added pressure to the economy throughout the world, with one exception: Asia. The Asian region, which includes Australia, New Zealand, Singapore, Taiwan, Hong Kong, Japan, Korea and China, has handled the pandemic much differently than the rest of the world, and it is reaping the benefits.
“Asia has navigated the health care crisis well,” says Zandi. “They locked down like we did back in the spring and did a marvelous job of testing and tracing. And that has worked. They’ve contained the virus and their economies have come back. We here have botched it badly and we’re paying a price.”
As a result of the recent surge, the next several months is going to be challenging in the US. However, there is good news. Congress passed a new stimulus bill, which will help, and the vaccine is already being distributed. Although a lot depends on adoption of the vaccine, Zandi says that it is a good sign the pandemic will come to an end sometime next year. “I’m hopeful that as we make our way towards the summer and certainly by the end of next year,” he says. “So, if we reconvene a year from now at this event, I think we’ll feel much better about things.”
Source: “The US Economy Struggles as Asia Rebounds“
CRE Waits to See if the Suburban Migration Trend Sticks
It merely accelerated the trend, according to a new research video from Marcus & Millichap.
The pandemic has led to sweeping changes in the way that we live our daily lives. Whether or not these behavioral changes, as Marcus & Millichap’s John Chang puts it, stick for the long term are the biggest question mark for commercial real estate players.
While the pandemic has impacted everything from the way we shop and buy goods to how we interact with friends, remote work is the most significant change that will impact the commercial real estate market, not only for office space but housing and retail as well.
“The behavior changes that holds the biggest impact for commercial real estate is people’s ability to work from home,” Chang, SVP and director of research services at Marcus & Millichap, said in a recent video. “This changed office usage and has caused or enabled people to move to the suburbs or different cities.”
People are moving from large cities like New York and San Francisco to small cities. There are several that have topped the list as the most popular, including sunbelt markets like Phoenix, Seattle, Charlotte, Atlanta, Tampa and Austin as well as Midwestern markets like Indianapolis and Kansas City.
On the other hand, the urban core has seen an exodus. “Over the short-term, this has caused demand for housing, office space and a host of other real estate-related services in Downtown areas to slacken,” says Chang.
Already, these migration patterns have dramatically changed real estate fundamentals. “Demand for suburban apartments and office space has benefitted greatly,” says Chang. “For the first time on record, urban office and vacancy rates have risen above their suburban counterparts.”
According to Chang, this pandemic was not the catalyst for these migration patterns. Rather, it only accelerated existing trends. “The pandemic did not cause this change. It merely accelerated this change,” he says. “The actual cause is demographics related with millennials aging into their 30s. That is the real driver.”
While it is unclear if these are temporary or permanent moves, they have the potential to significantly alter commercial real estate market. “Whether these relocations will stick after the pandemic is the big question,” says Chang. “If they do, they are rewriting the commercial real estate outlook for every property type.”
Source: “CRE Waits to See if the Suburban Migration Trend Sticks“
