Commercial real estate agents are dealing with a market in flux right now, with an even murkier long-term outlook in the office and retail sectors.
Activity in some areas has picked up, however, and the warehouse boom is expected to continue. But with COVID-19 an ever-present concern, it’s hard to get a picture on where much of the market is headed.
There was a lot of investment in the first quarter, “and that pretty much stopped in its tracks” because of the coronavirus, said Heather Kreiger, of ROCK Commercial Real Estate. She works primarily in York and Lancaster counties, mostly with office and small retail space and land acquisition.
Within the past several weeks, activity has really picked up again, she said. “A lot of people are out looking for property to purchase,” either existing structures or land to develop. That includes apartment buildings (called multifamily in the industry) and mini storage facilities. Renters need storage, so they go hand in hand.
Industrial land to construct huge warehouses/fulfillment centers for e-commerce, is also in demand, Kreiger said, which has been going on for a while.
COVID-19’s effect on office space down the road could result in large companies downsizing because employees can work from home, and small businesses upsizing as they require more room to social distance, she said.
The retail outlook
As for retail, Kreiger, president of the Realtors Association of York & Adams Counties, said in an email that it “seems there are more retail spaces coming available. There was an increase in retail vacancy in the second quarter and I believe that will continue to be the trend through this year.”
In its second-quarter market review for York County, ROCK Commercial Real Estate reported an 8% vacancy rate for all retail types, including 11.2% for shopping centers. The vacancy rate for Lancaster County in the second quarter was 6.18% overall for retail and just 3.27% for shopping centers.
Of all the commercial areas, Kreiger wrote that retail was probably hit hardest by the shutdown, particularly bars and restaurants. Outside seating helps, but that won’t be an option when the weather gets cold, she noted. Takeout, delivery and curbside pickup, and partnering with Grubhub and other food delivery apps, will be even more important in the months ahead, she wrote.
Retail stores are dependent upon back-to-school and the holiday shopping season, and those could very well be greatly hampered significantly, either because kids don’t get sent to school or online sales take business away, Kreiger said.
Either way, she wrote, “I believe the trend of curbside pickup is here to stay.”
Blaze Cambruzzi, a partner in TRUE Commercial Real Estate, agreed that the retail industry is “very challenged,” particularly restaurants. Hospitality is the toughest segment right now, and it was doing so well prior to COVID-19, he said.
But it’s hard to find a general theme, said Cambruzzi, who works in Lancaster, Lebanon, York, Cumberland, Dauphin and Berks counties, as well as the Lehigh Valley. Some businesses going through difficulties may be able to work out concessions on their leases; others may not. A lot has to do with the kind of lease it is, he said. “Every tenant needs to know the terms of the lease” and then try to work out a win-win for both parties.
Entering the pandemic, there wasn’t much vacant commercial space, Cambruzzi said. “It was a pretty healthy environment.” And activity didn’t disappear altogether afterward. For example, there were five written letters of intent for the former Bon-Ton department store in the York Galleria Mall, he said, which is being redeveloped into a mini storage facility. “We have a transient population more than ever, that’s why we need storage.”
Warehousing in demand
Warehousing is still functioning strong, too, Cambruzzi said, echoing Kreiger. “Overall, that’s pretty healthy,” relying on economies of scale driven by a market of high volume.
Before COVID-19, the economy was in incredible shape, backed by high consumer spending, said Mike Rohm, of SVN Latus. Basically, the risk of recession seemed remote and the commercial market was riding the wave, too, said Rohm, who covers primarily Cumberland and Dauphin counties. Property values were climbing, and local investors were competing for the best assets against out-of-town investors, he said.
But there’s still reason to be optimistic the pandemic will lift, soon, Rohm said.
Buyers may be offering 70% of pre-COVID-19 value and sellers are still not biting, he said. “There’s a discrepancy between what sellers are willing to sell for and what buyers will pay.”
Rohm, who operates an appraisal company, too, also predicted a mega warehouse boom. He cited a new report by professional services firm JLL that demand for industrial real estate could reach an additional 1 billion square feet by 2025.
Jim Helsel, president/owner and broker of record at Helsel Inc. Realtors, said the office market really flattened out since March. Helsel primarily does office leasing and sales and investment analysis in the central Pennsylvania region. He’s still leasing space, generally from 1,000 to 3,000 square feet. That’s where the market is right now.
“The large corporate world is locked down,” Helsel said, and he doesn’t see large, corporate leases resuming anytime soon with the pandemic threat still around. But he also has an interesting perspective on whether working at home is a long-term trend. During the last recession, people started working remotely to save money, he said. Then they began going back to the office.
When employees aren’t together, brainstorming and collaborating, production goes down, Helsel said. “There’s a lack of synergy” when everyone works apart, he said. “You need the interaction.”