Stores will still matter in 2020, commercial real estate will stay busy
According to PriceWaterhouseCoopers, the next few years promise to be “retail’s great transition period,” as demand for larger retailers and department stores dwindles in favor of discount stores, and fast online retail. In that study, more than 80% of participants agreed that COVID-19 accelerated the shift in retail that likely would have occurred over the next few years. This is an acceleration of what was about to happen. Expect to see a much smaller physical retail presence and vast amounts of vacant space with lower rents. Top brands will take advantage of lower prices to upgrade their locations, while malls will leverage empty space to improve their tenant roster or convert to distribution centers for online retailers.Stores will still matter in 2021. Commercial buildings will see a realignment towards ondemand leases, with fewer long term leases being the new norm.
Though real estate capital markets have settled, most experts anticipate overall real estate prices to fall 5-10% as income is curtailed for several years. Industrial properties, data centers and single-family homes are expected to rise in value, while retail and hospitality will see the largest decline. The long-term outlook in the real estate sector hinges on the country’s ability to reign in COVID-19.
COVID-19 is accelerating suburban growth. With a greater emphasis on health and safety, the need for lower density environments and more space has only grown. Remote work and higher taxes in large cities due to declining tourism and business tax revenue are contributing to the shift away from an urban core. Major cities like New York and Boston will not recover for 3 – 5 years.
However, a study from Colliers International predicts that the number of flexible offices could double or triple over the next five years as employees continue to demand to work from anywhere.
Along with this increase in flexible offices is the desire for short-term leases. Office tenants are now seeking leases that are shorter than traditional 10- to 15-year leases.