Commercial Real Estate Trends | June 2020

Commercial Real Estate Trends

What trends are we seeing in the commercial real estate market in 2020?

First, you have to understand that the commercial real estate market is composed of three categories industrial, retail, and office. 

Industrial

In the industrial world, we should be seeing growth in manufacturing but right now there’s a slowdown. As we come out of the recession you’re going to see a lot more manufacturing coming back to the US because the government is going to put a lot more emphasis on bringing these jobs back from China, Mexico, and other places around the world. Our government wants to create a much more resilient supply chain here at home. So we will see a slow down at first then growth in the industrial commercial market down the road. 

We are also going to see a lot more warehouses in 2020, much of this will be smaller warehouses in urban areas. We could see many malls never reopen and be turned into warehouses, and empty retail spaces may turn into last-mile distribution warehouses for companies like Amazon, Walmart, and all the different retailers now selling online.

Retail

Retail is going to shrink. We have five times more retail space than Europe, even though we have a similar size population. A lot of the venture capital money is going to leave retail. As companies close we are going to go through a little bit of destruction in order to digest a lot of the retail spaces that are not fully utilized right now. People will still need to shop in person, they will still need to go to malls and stores. But these spaces will be smaller and smarter. Retailers are going to have to be a lot more focused on revenue per square foot causing retail spaces to become a little bit cheaper.

So many brands and companies are going to be able to afford these retail spaces. I think this is an opportunity for a lot of these zombie retailers to be absorbed, broken down, and eaten up by smaller growing players.

Office

The third element of commercial real estate is office space. There will always be a need to go to the office, but as the world returns to normal, offices will not be the same. Offices will be smaller as companies realize not everybody needs to go to the office every day. With technology like Zoom and other systems and processes, people have figured out a way to work from home and be productive.

So not everybody’s going to go back to the office, or at least not be there at the same time. Therefore the utilization of space is going to increase and the demand or need for space is going to be reduced. 

This is going to put a lot of pressure on commercial real estate office space landlords to find a way to utilize their spaces a put pressure on a price per square foot.

We should see a lot more creativity around the way these spaces are used. Many of these office spaces may turn into residential or multifamily apartments as demand rises especially in high-density areas or expensive neighborhoods. 

The same thing may happen with retail spaces. Many malls might turn into apartments or even condos. 

Many of these trends have been happening for the past five years and a COVID-19 economic recession is only going to speed up these transitions.

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