Archives for August 2020

The coronavirus pandemic has heavily hit the demand for commercial real estate: multifamily, office, retail, and hospitality/lodging. The long-term effect on the demand for commercial space is still unraveling. This survey is intended to gather information on the impact of the pandemic on renters and landlords alike on key indicators such as rent payment received, rent payment options for renters, leasing volume, vacancy, rents, common area maintenance fees, lease term, and changes in the workplace. Learn More.
Source: “Leasing Conditions in a Pandemic Environment“

Don’t look now but 2020 is half over! Where the heck did the first six months go? Of course, no one even remembers most of the first quarter, but if you do, things were going great in January and February! In fact, many of us in commercial real estate didn’t see an end in sight! Then March arrived and we entered a whole new world. I can actually remember thinking “I might never do another deal this year!” Thankfully, I was wrong.
As reflected in the most recent SIOR Snapshot Sentiment Survey, the second quarter of 2020 has been an interesting ride in the office and industrial world. SIOR office brokers’ confidence trails that of their industrial counterparts, likely because there have been more answers than questions in the industrial sector, versus the opposite on the office side. Frankly, as of this writing, we won’t have definitive answers to many of the office questions for some time. Office occupiers are still trying to determine their next move, and in many cases, are still telling employees to stay home until they figure it all out. In fact, we are hearing more and more about companies not planning on determining “return to the office” dates until at least Labor Day. Unfortunately, this will delay any definitive revelations on the COVID-19 crisis’ long-term impact on the office market. So for now, we need to continue to contemplate: will we need more space due to social distancing, or less because everyone is still working from home?
By far, the industrial sector continues to be the most resilient area of commercial real estate. There has not been a single SIOR or non-SIOR webinar, podcast, Open Forum post etc. that has given any hint of a slowing of e-commerce and omnichannel related space consumption. Demand for large and small distribution centers, last-mile warehousing, cooler and freezer facilities, and reshoring and inventory stockpiling are all trending up. In fact, incredibly, there appears to be even more demand today than there was before the COVID-19 crisis began! Institutional quality rates in most markets continue to rise. In many cases, industrial vacancy rates are dropping or, at worst, remaining flat. Of course, we all know there is more to the industrial sector than e-commerce and there have been some specific areas of retraction in a number of markets that have been negatively impacted because of the unique industries in their region. Commercial aerospace, hospitality and tourism, gas, oil and automotive industries have all been hit hard. But overall, the industrial market remains very strong.
Fueled by robust industrial demand, the recent SIOR Snapshot Sentiment Survey showed a slight increase in overall commercial real estate confidence. We believe this uptick in confidence is partially due to SIOR’s member’s increased visibility into their client’s future, a clearer understanding of COVID-19’s affect on the economy, and a better understanding of how the crisis has impacted their own business, both short and long term. As noted in the survey, the progress of transactions (industrial and office) was comparable to historical norms. That said, office broker’s opinions of the coming six months remain negative and we believe this will continue until companies decide their next move.
The markets remain fluid, as does the news, which remains unpredictable. But the news cycle is beginning to slow, giving SIOR brokers more insight into the future. Forecasting the next two weeks used to be nearly impossible, but that’s no longer the case. Now, it’s reasonable to predict the next quarter or two. And those two quarters will be crucial as we begin to uncover the real effects of the crisis on small to medium sized companies and the commensurate effect on the office and industrial markets moving forward. One thing that hasn’t changed is that the best way to understand what’s next and how to make a sound investment in today’s market is to work with an SIOR.
Source: “A Midyear Take on the Industrial and Office Market”
 
 

The widespread vacancy problems that surfaced during the Great Recession may inform the real estate industry and government response to emerging property issues in the COVID-19 pandemic, experts said Tuesday during the first installment of a four-part webinar series, “Stabilizing and Revitalizing Neighborhoods in the COVID-19 Era.” The webinar series is being presented by the National Association of REALTORS® in partnership with the Center for Community Progress.
Danielle Lewinski, vice president and director of Michigan Initiatives for the Center for Community Progress, discussed property vacancy, blight, and abandonment, as well as ways real estate professionals can provide market expertise to local governments to aid in the redevelopment of neighborhoods. “Any community plan must have options for residential and business development, and it must be more resilient to environmental changes,” Lewinski said. “If a plan falls short, REALTORS® are in an excellent position to advise local governments.”
The national unemployment rate in May was higher than at any point during the Great Recession, leading to loss of business and household income and creating a cascading chain of events that can lead to vacant and abandoned properties, Lewinski said. An abundance of such properties can harm individual and community wellness. To address this problem, Lewinski proposed that community leaders, in consultation with real estate experts, consider three key questions:

1. Where are the problem properties?
2. What are the market conditions?
3. What is the future land use vision?

A replay of the webinar will soon be available for registrants on the webinar series’ Overview of Sessions page. In the replay, you’ll also hear from Veronica Cardello of the Pennsylvania Association of REALTORS®, who discussed a successful collaboration between the association and community leaders that resulted in the transformation of two local areas with vacant property issues.
Catch the Next 3 Installments of the Webinar Series
Code Enforcement: A Tool for Preventing Vacancy and Abandonment
Aug. 25, 2 p.m. ET
Transferring Vacant and Abandoned Properties
Sept. 1, 2 p.m. ET
Land Banking – Returning Properties to Productive Use
Sept. 8, 2 p.m. ET
Register here.
Source: “What History Can Tell Us About Commercial Vacancies“

America’s business districts may be poised for a metamorphosis, realtor.com® reports. More employees are working remotely since the COVID-19 pandemic, a trend that may last for some companies. High-rise office buildings in downtown areas may be less crowded in the future, and the commercial sector is already working with developers and lawmakers to discuss ways these spaces can be retrofitted.
The remote work trend could “free up a lot of commercial space, which can be converted to affordable housing,” Ben Carson, U.S. Housing and Urban Development secretary, told Fox News in an interview in June. “We are very much looking at that right now, looking at ways to be able to facilitate that transformation.”
Indeed, “office-to-residential conversions would be a win-win solution in some cities where you’re seeing declining lease renewals and a massive shortage of housing,” notes George Ratiu, realtor.com®’s senior economist.
Still, Ratiu says the urban office sector will still have a presence, but companies could shrink their office footprint as more people work from home or adopt a hybrid schedule by staggering in-office time periodic visits.
That could free up some space. Some office buildings may become hybrids within themselves, like a few floors reserved for office space, some for residential, and other for retail on the ground floor.
Even before the pandemic, Cleveland served as one example of an office-to-residential conversion that has been credited with helping to revitalize the city’s downtown. Old factories, office buildings, and department stores have been repurposed into higher-end apartments, some with waterfront views. About 60 buildings in the city have undergone a transformation using state and federal tax credits. Joe Marinucci, president and CEO of the Downtown Cleveland Alliance, says that of the city’s 4.5 million square feet of empty commercial space in the mid 2000s, about 2.5 million have since been turned into housing or hotels.
But many office spaces are locked in to long-term, multiyear leases that could even last for decades.
“We won’t see the full impact on offices until these leases end,” KC Conway, chief economist of the CCIM Institute, told realtor.com®.
Some hotel owners are expressing concern, however. More than half of 600-plus hotel owners recently surveyed say they’re in danger of losing their properties to foreclosure due to the pandemic, according to a recent American Hotel & Lodging Association conducted July 23-27.
“Many are going to close” for good, Richard Rubin, CEO of Repvblik, a Los Angeles–based firm that turns commercial space into housing nationwide, told realtor.com®. The firm turned a six-building Days Inn in Branson, Mo., into a complex of studio and one-bedroom apartments, with a clubhouse, gym, and renovated pool.
But some housing analysts believe it’s too early to seal the fate of urban office buildings. After the 9/11 terrorist attacks, many analysts similarly predicted their demise.
“There was a feeling that this would be the end of central business districts because of terrorism. But businesses continued to want to locate there,” Charles McNally, a spokesman for New York University’s Furman Center for Real Estate and Urban Policy, told realtor.com®. “There’s reason to believe demand will rebound.”
Source: “Can Empty Offices Become Affordable Housing?“