Real estate emerges from the pandemic
After a horrible 2020 that saw many tenants fall behind on rent or go belly up, commercial property landlords are seeing signs of improvement this year, including a jump in hiring by restaurants, bars and retailers.
Still, the work-from-home and online shopping trends are expected to permanently reshape demand for office and retail space, says Hessam Nadji, CEO of Marcus & Millichap, a commercial real estate financing and advisory company.
Nadji recently spoke to The Associated Press about the state of the commercial real estate industry and its prospects for a comeback as the economy slowly emerges from the pandemic.
2020 was a rough year for commercial real estate, especially retail. How is that sector looking now?
We’ve seen a big surge in retail related confidence, both in what landlords are reporting in rent collections as well as buyers, who are now willing to look at shopping centers they weren’t willing to look at before. So retail is seeing this more immediate kind of pop in confidence and reopening benefits, especially when it comes to restaurants, bars and entertainment. Retail is feeling the healing cycle begin and it’s very encouraging.
Are employers going to need less office space now that many employees have shown they can work well from home?
Office is probably impacted on a longer-term basis more than any other property type because companies have learned you can manage a workforce remotely, and people have learned they don’t have to commute to work every single day. On both the worker side and the employer side there’s an embracing of at least a partial virtual solution to employment. Is it going to be 50-50? Is it going to be 70% in office, 30% virtual? That’s anybody’s guess. My speculation would be 70% to 80% favoring coming into the office, but 20% to 30% becoming a permanent, virtual component of how we manage ourselves and our companies.
How are some of the other commercial property categories doing? Fundamentals are holding up very solidly in self-storage. There’s strength in the industrial market, because of the modern warehouse distribution needs that major online retailers have and a lot of the old industrial product became functionally obsolete. So, there’s been a lot of new building that’s being absorbed very rapidly. Industrial vacancies are very low and rent growth is very high, despite the fact that we’ve built a record amount of new business in industrial. We’re seeing the most pain of course in hotels, shopping centers. Senior housing is going to take a while to recover as well, because of all the health issues and concerns people have putting their elderly parents now in care facilities.