Opportunity Economy: The Recovery and Commercial Real Estate Leases
The COVID-19 pandemic isn’t over, but with a large percentage of the population vaccinated and case counts dropping, now is the time to consider post-pandemic commercial real estate trends. With that in mind, Nellie Shipley Sullivan, a member of Womble Bond Dickinson’s Real Estate Sector Team, and Charlie McCurry, Senior Division Counsel in the firm’s GCSolutions service, discussed current and near-future trends in commercial real estate. The discussion took place with Womble Bond Dickinson attorney Mark Henriques on an episode of the “In-house Roundhouse” podcast, and the following article is based on that conversation.
Few historical events have reshaped commercial real estate as quickly as the way the COVID-19 pandemic did in March 2020. In some sectors, such as office and retail, the shift to work-from-home and stay-at-home meant new swaths of empty towers and storefronts. But in other economic segments, companies scrambled to find enough space to meet increased demand.
So where does the commercial real estate market stand in late 2021? Commercial real estate is a broad sector and the answer to that question largely depends on sector and location.
For example, office leasing continues to face headwinds related to the COVID-19 pandemic. Office leasing activity was at 39 million square feet for Q3 2021, compared to nearly 54 million in Q3 2019. However, it should be noted that Q3 2021 was the strongest office leasing quarter since the pandemic began, and approximately 50 percent higher than in Q3 2020, when the pandemic raged and vaccines were not available. Likewise, the retail real estate market, which was hard-hit by the pandemic, continues to face challenges.
“The pandemic has accelerated and in many cases exacerbated the issues we saw previous to the outbreak,” McCurry said. Trends that impact the commercial real estate market, such as working from home and online shopping, certainly grew during the pandemic, but were already in motion before COVID-19.
But the Opportunity Economy already has been a boon for other sectors. Sullivan notes that industrial real estate is setting records, with Q3 2021 vacancy rates reaching a record low of 4.3 percent and year-over-year industrial real estate rent growth setting an all-time high of 6.7 percent. Warehousing and distribution space is particularly important, as companies reconfigure their supply chain networks to meet new challenges and opportunities.
The multi-family housing market also is booming, Sullivan said. Demand for such housing now exceeds pre-pandemic numbers, according to a recent Freddie Mac report.
And economic and public health conditions look bright for the commercial real estate market as a whole as 2021 ends and 2022 begins.
“There’s so much capital chasing real estate – and that’s not always so,” Sullivan said.