For most commercial real estate sectors, the pandemic has been brutal. Everything from safer living at home to manufacturing and transportation shutdowns played a role. Whether your portfolio includes shops, restaurants, offices and hotels or experiential properties like cinemas and casinos, you probably weren’t too thrilled with the performance of your investments.
Fast forward to the present, and people come back and live their lives. This is great news for real estate investors. And in fact, the resilience and adaptability that commercial real estate has shown may well be the most compelling reason to invest in it. Let’s take a closer look at how this plays out in a few business sectors.
Essential retailers like supermarkets and dollar stores have thrived during the pandemic, but many non-essential retailers have been far less fortunate. In total, more than 12,000 retail stores closed permanently in 2020. It was starting to look like the retail apocalypse – the long-held idea that e-commerce would eventually lead to the end of retail commerce. physical detail – was coming true, thanks to the pandemic. But less than half that number of stores closed last year and many more opened.
Ordering everything you want or need without even having to get dressed or set foot outside is certainly convenient. But the isolation many felt at the height of the pandemic has drastically reduced that appeal. Business owners are adapting to this increased desire to get outdoors by creating more open-air malls. This includes “de-mall” of their traditional commercial properties or remodeling them to eliminate indoor common areas and make each store accessible only from the outside.
According to the commercial services firm JLL, these types of outdoor malls have been charging rents nearly 50% higher than traditional malls have been able to fetch last year. So it looks like brick-and-mortar retail is here to stay, as long as operators continue to meet consumers wherever they want.
Office space investors have been watching the remote work situation carefully throughout the pandemic. Some companies allow remote working permanently while others bring everyone back to the office full-time. Many others fall somewhere in between and lean towards some sort of hybrid arrangement. Office space is also increasingly adapting to worker concerns, incorporating advanced air filtration systems, touchless door handles and faucets, and even plenty of outdoor space.
So what does all this mean for office investors? Commercial real estate services firm CBREThe Spring 2022 Occupant Opinion Survey gives us insight into how 185 companies view office space in the future. While 52% plan to reduce their office footprint over the next three years, 39% actually plan to expand their use of office space.
Of course, it’s impossible to say whether the net effect on office space will be positive or negative without knowing how much these companies are considering expanding and shrinking. What is clear is that the office is far from dead.
Warehouses are unique here in that they are never really had to adapt to the pandemic. Sure, precautions like masking and social distancing have been put in place, but warehouses as a whole haven’t had to revise their strategies in any way to stay profitable. Industrial real estate will always be needed to store and move products, whether customers buy that product in person or online. That’s why investors who already had a good chunk of industrial property in their portfolios before the pandemic began may have been happier than most during the worst.
So if anything, the pandemic has only served to highlight what secure investment warehouses are. That said, this sector is vulnerable to issues such as labor disputes and communities reluctant to install new warehouses. But these are issues that can be resolved on a case-by-case basis, not a threat to the industry as a whole.
Commercial real estate lives on
Most of us are social creatures, and most commercial real estate is about bringing people together in some way. If we have to part from time to time, so be it. But we will always end up coming back together. We are also growing and changing, and the pandemic has proven that, as we do, commercial real estate will find ways to adapt to these changes. That’s why it’s worth investing in commercial real estate, perhaps more than ever.