There really is no telling what life in a post-COVID world looks like, especially at this juncture. Alas, it goes without saying that the major, foundational changes that have come as a result of this awful pandemic will continue to affect every element of our current way of life. This philosophy naturally extends, of course, to the world of commercial real estate.
For those who like to keep their ears to the street when it comes to real estate, there are a few valuable tips you are going to want to keep in mind as the country attempts to chart a somewhat unprecedented course into 2021. With that in mind, here are five burgeoning trends to keep your eyes peeled for in the world of commercial real estate as we blaze a trail towards a healthier, more hopeful, and more prosperous 2021.
1. Don’t Underestimate Short-Term Leases
One of the consistent, dependable trends you can most definitely count on in the current real estate market is the value of short-term leases. Many folks who work in the corporate sector, or other office-based jobs, are currently seeking out much shorter leases than usual, while the folks who own commercial work spaces are looking to fill their largely empty office units with prospective tenants. For context, here are some numbers: during Manhattan’s 2019 calendar year, over 70% of leases within the city were classified as new leases (as opposed to renewals), while in 2020, the market recorded a staggering 10% drop.
2. More Openings for Subleases
Ask yourself: if you’re in the market for office subleases, are you seeing a lot of openings lately? While exact statistics on the issue are still being worked out and configured, it is estimated that subleasing in the greater Los Angeles area is currently at an all-time high, with figures in New York seeing similarly robust levels of growth and development. Obviously, plenty of bosses and employers are asking themselves how much real estate space they actually need during a global pandemic, while many employees are opting to stay safe and work from home. In any case, the sharp rise in subleases could mean continued, added pressure for basic office rentals.
3. E-Commerce as it Affects Small Businesses
Restaurants and retail shops have been hit particularly hard during this pandemic, with many consumers opting to purchase food and household items that they would have normally gone out and shopped for online. The e-commerce boom is only continuing to grow, with stay-at-home orders in Los Angeles forcing permanent or temporary closure of several longstanding shops and eateries that are beloved by the local community. Obviously, these businesses shutting down end up costing landlords a good deal of money, which means that they now have to think outside the box when it comes to lease arrangements (at least as they relate to imminent bankruptcies). Until things go back to normal in our culture, we are going to see more and more small businesses paying rent based on a small percentile of their overall sales sum.
4. The Appeal of Warehouse Space
To say that most businesses – and really, most citizens in general – aren’t doing too well during this pandemic would be a gross understatement. However, against all odds, warehouse spaces are having a moment in the world of real estate, particularly if the space in question is an industrial one. Amazon, for instance, perhaps the world’s largest and most influential commercial retailer, operates off of a warehouse-based production line that makes last-minute delivery possible. The spike in COVID cases has caused more and more people to stay at home, which means that more people are going to be making their essential purchases online. This past September, Amazon opened over one hundred production-based warehouses across the country, partly to prepare for a holiday season that had no real precedent. In any case, the scale seems to be tipping away from traditional brick-and-mortar real estate, and towards the realm of e-commerce. Which brings us to…
5. How The Boom Affects Mom and Pop Shops
Since e-commerce companies are going to require more square footage to keep up with the current rise in supply and demand, mom and pop shops are going to have to adapt to this new normal in whatever way they can. It seems likely that some of these small, struggling businesses may opt to either downsize or increase their operations; much of this has to do with whether or not the business in question makes its product available for online purchase. Companies who do not have this online commercial recourse may decide to downsize, while those who already have an online presence could very well see a robust expansion in the coming year. What it comes down to is a marriage of convenience (purchasing from profitable online retailers in accordance with social distancing or stay-at-home orders), with the continued support of under heralded small businesses to ensure that they stay afloat.
For more information about 2021 trends in the commercial real estate, contact us directly for a free consultation and property valuation.
MIG Commercial Real Estate Services Inc. and Alex Matevosian do not provide legal, tax or investment advice. Any published articles, blog posts, resources or other related material located on this website are for information purposes only. Please seek the advice of an attorney, tax professional, and/or financial advisor for legal, tax or financial advice.