Commercial Real Estate Expected to See Strong Gains in Industrial Market

For commercial Realtors®, recovery from the pandemic is offering both highs and lows.

According to NAR’s 2020 Market Recovery Survey, which asked agents about their commercial markets, 44% said they expect to see a demand for industrial properties grow, while 35% expect the demand for multi-family properties to increase. However, 72% said they anticipate the demand for non-essential retail to drop and 66% said they expect office usage to decrease.

“Suburban offices will see more activity,” said Stacy Martin, president of the PA/NJ/DE CCIM Chapter. “Not immediately, but within the next 12 to 24 months after companies re-evaluate their workforce and needs. Until a company’s lease is up for renewal, they will need to work out how to best utilize the space they have in order to accommodate social distancing,” she said.

Martin added that there may be the option to sublet the space, which we could see a lot more of until things settle through recovery.

“The obvious reason the suburbs will become more desirable is that it will allow companies to social distance more readily,” she said. “There’s less need for public transportation and less worry about elevator rides of more than a few floors, and the like. ”

Martin also said she expects some organizations will keep some office space in the city, but will also lease a satellite office in the suburbs for flexibility. With many companies allowing employees to work from home during the pandemic, Martin expects the trend to return.

“The need for office space isn’t going away. I don’t see it being an industry sector that is taking a dive in the long run,” she said.

The NAR report found 74% of commercial Realtors® surveyed reported leases have been terminated or delayed, especially among non-essential retail establishments, followed by the office sector at 38%.

Many retail chains that were already struggling closed their doors during the pandemic. “Some of those retailers were already in flux,” said Martin. “But I don’t think that it’s all doom and gloom for retail. We’re seeing creative concepts emerge. Retail is evolving; the retailers need to be in line with the digital consumer.”

“Consumers have been forced to move away from buying in stores and are now doing much more shopping from home,” said Dr. Lawrence Yun, NAR’s chief economist. “Unfortunately, this has come at the detriment of commercial property owners, but these circumstances could be an opportunity for growth in the industrial warehouse market, as Americans have become more reliant on home delivery services.”

One industry that continues to prosper is the industrial sector. Martin said it was thriving before the pandemic and remains strong.

Many regions are gearing up for expansions, mostly in e-commerce and logistics, said Martin.

“The robust demand will continue, creating limited availability of existing industrial space, increasing rents, in addition to increased new construction,” said Martin. “Certainly, we expect e-commerce to contribute to the success, but food and beverage is the next largest contributor.”

“COVID-19 has accelerated these three trends,” added Martin. “That’s not necessarily bad.”