The current state of the world amidst a global pandemic has created remarkable circumstances we’ve never before seen, both personally and in business. While many have experienced setbacks and an endless list of uncertainties, the crisis has presented opportunities and unexpected growth for others.
Commercial Real Estate has not been immune to the dramatic shift in business practices. Because real estate is a relationship business, I find that targeting new opportunities has been challenging – and probably the most difficult aspect of the pandemic. And yet I find that business continually evolves and we have the opportunity to get creative and learn to adapt.
OFFICE TRENDS ENTERING 2021
As a result of the majority of the population shifting to a work-from-home lifestyle last year, it is no surprise we are seeing a greater interest in smaller office space. Downsizing is trending; the hybrid work model seems inevitable going forward. Employers don’t want to eliminate a physical space altogether, but are willing to embrace a work model that splits time between the office and home.
BUYER & SELLER BEHAVIOR
As we press into the early months of 2021, buyers continue to proceed with caution. This buyer behavior has forced sellers to be patient. Interest remains high; however, buyers are wary of their own financial position and uncertain what kind of physical space makes sense.
On the flip side, sellers may try to wait out the pandemic in search of pre-pandemic pricing.
While we are see many people looking, a “wait and see” approach is widespread. Flexible-use properties that house multiple functions i.e. office, warehouse & industrial use, are seeing more interest than office or retail space. We predict office space will see a quicker recovery than retail in the long run, but we’re not there yet.
ADVICE FOR COMMERCIAL REAL ESTATE
Equity is key. Entering an owner/occupier situation turns real estate into an asset and will avoid the expenditure of rent, setting you up for a great position long term.
For companies seeing huge growth during this time, it is an opportunity to look for multi-use space. The pandemic has seen companies like Peloton become expertly situated to fill the demand for at-home fitness options. A flex use space that includes industrial warehousing will be key to continue to satisfy demand.
With the likely potential of a long-term hybrid work model, this is the time to reduce the physical office footprint and downsize to an affordable location. This will allow companies to continue operations with minimal disruption.
ANTICIPATED TIMELINES FOR COMMERCIAL REAL ESTATE
Timelines are always situational. If a buyer is in a prime position with liquidity and the seller isn’t in a position to wait out the pandemic, capitalize on the moment. Especially if it means the buyer can be an owner/occupier to save significantly on rent.
Our hope is that warmer weather returns a sense of “normal.” We are seeing activity pick back up, certainly within the last two months, but we aren’t to the other side quite yet.
THE FUTURE OF COMMERCIAL REAL ESTATE
Commercial Real Estate has always been a long game, beginning to end. Patience is key and understandably right now, the game might be a little longer. We are going to see some people who did well during the pandemic and are cash rich, but that greatly depends on the sector.
Flex-use space will remain in high demand and hopefully we will see office space needs increase as well. Everything has changed for brick and mortar stores. This pandemic might be a “wait and see” situation for most.
Learn more about Robert Edelstein.