Questioning the motivation of many of the writings surrounding the real estate world, especially the commercial one, these are our candid observations.
Overall our business is very good. In the office market, everyone is dealing with their requirements differently, some with little change; but, with construction costs being the highest in history, it makes renovation of existing facilities and the impact of this on landlords and tenants and deal economics much more complicated than at anytime that I can recall in many years in the business.
Real demand is impossible to gauge as many users are waiting to see what everyone else is going to do. Large subleases have in many cases been removed from the market. We suspect that, in most cases, the cost/savings benefits were not seen as adequate to go through the disruption that this would cause these companies and their workforces as many of these companies are struggling to retain employees who are tempted by job offers that are more compatible with their locational and work-from-home preferences.
The owners of commercial real estate that have a high percentage of office properties will most likely have to struggle for several years into the future. It is difficult to imagine that this will not move beyond just additional concessions, e.g., free rental, to affect the actual base rentals for these properties.
This would be the case with the retail industry as well as many properties are being repurposed to address large vacancies and the introduction of 3rd party logistics retailers into the market. Folks like Walmart and Target has been competing with Amazon for much of this business. Simon and Brookfield’s recent acquisition of JC Penney suggests that another player will very soon enter that fray. The pandemic has only served to strengthen this element of the retail industry.
Not surprisingly, Simon has recently commented on making elements of their centers into distribution hubs. They clearly see their centers taking on a broad range change in the years ahead. They should be the beneficiaries of much of this.
In this same vein, industrial real estate of which we do a fair amount is very strong with “last mile”, close in properties hibernating into almost a retail/industrial nature. Not only have the 3rd party logistics operations had a lot to do with this; but, frankly, many cities have at the same time run out of close in real estate with most of the desirable properties already having been developed. This undoubtedly will result in some additional repurposing in the coming years.
On the residential front, as you may have noticed, large investors are buying into single family housing portfolios to rent. Whole communities are being built only for this purpose. One example of this is a 200 home project being built up north of Atlanta near Lake Lanier with the specific purpose of renting these homes.