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Long live the American mall. These dreamy retail hubs were once bustling scenes of activity, fun, and commerce. If you needed to shop, you went to the nearest mall. There was no question, no contest, and no real competitors. The mall was the golden child of the US retail footprint.
But that was years ago. Today’s mall scene has turned bleak as brick and mortar retail has fallen to the wayside in light of e-commerce. The vacancy rate of malls reached the highest point in 2 decades this year. And, thanks to the coronavirus pandemic’s massive disruption to physical retail, malls have since seen even more closures.
While shopping centers with a fresh spin still do hold irrefutable promise for commercial real estate, there’s no doubt that the massive square footage currently occupied by dying mall spaces will be reconfigured.
In the past, there has been a lot of talk about the future of vacant mall spaces. The possibilities for abandoned malls were manifold. From schools to mixed-use centers, the options were at the forefront of CRE retail analyst’s forecasts.
But right now, as affordable housing is in high demand, the new move for malls may be decided.
A New Future for Mall Spaces
Housing is being examined as the next possible phase for mall CRE. The U.S government recently went public with their prospective plans to convert retail spaces into residential communities.Transitioning empty storefronts into micro-apartments would flood supply into metropolitan markets, helping to ease the housing shortages plaguing cities all around the country.
In essence, mall spaces would be transformed into multifamily communities. In many cases, these would become mixed-use developments that blend retail, office, and living spaces all in one set up.
After a few alterations to the physical space, failing malls could easily be retrofitted into attractive housing options.
Is Housing the Right Move?
There are so many options for the future of empty malls – is housing really the best bet?
Despite all of the potentials, housing is an imminent need, and malls are inherently built with many of the in-demand resources that housing developers are looking for.
By their very nature, malls do make strong prospects for multifamily projects. Malls are located in centralized areas that are geared around attracting traffic and remaining accessible. In order to accommodate changing tenants, the units are easy to renovate. Malls are also built around public transit options, making transportation a key benefit of these locations.
It’s impossible to deny the fact that malls hold immense promise in creating community hubs for living and working.
Paving the Way
In light of the market’s hesitant response to converting malls into communities, a few brave players have already made headway into this trend. By taking the first steps, they’re providing a model for the industry to gauge the reality of these transformational projects.
Keep an eye on the progress of this trend to stay ahead of the curve – it may be one of the biggest areas of opportunity for CRE into 2021 and beyond.
The coronavirus pandemic has undoubtedly shaken up every market in the country including the demand for Mid-Atlantic warehouse space. While all eyes are on Class A cities to see how the very best in the game are faring during these times, other locations aren’t getting much consideration.
In the middle of all of this market-madness, how are opportunity zones doing right now?
Opportunity zones are officially defined as “economically-distressed communities where new investments, under certain conditions, may be eligible for preferential tax treatment.” This system was introduced with the 2018 Tax Cuts and Jobs Act by the IRS.
Throughout the United States, there are more than 8,500 locations officially designated as opportunity zones. By outlining communities around the country that need the most aid, the IRS is able to stimulate the direction of development projects by offering significant tax benefits for investors who enhance these locations.
Besides the inherent tax benefits, opportunity zones have proved themselves to be strong investment options. Competition is low, the returns are usually substantial, and it’s a strategic way to nationally expand commercial portfolios.
But, now that the conditions have changed, how are these locations doing? Here’s what the ‘right now’ of opportunity zones looks like:
In the midst of a pandemic and an economic downturn, investors are shying away from opportunity zone investments. As projects all around the country have been subject to the widespread disruptions relating to COVID, opportunity zone investments aren’t picking up speed the way they were in the past.
It’s clear that investors are wary about funneling their capital into any investment right now. In a time of long term uncertainty, it’s difficult to pivot strategically. It’s impossible to know where the virus’ next hotspot will be, or if there will be another country-wide market closure anytime soon.
Because of these outstanding circumstances, investors are giving all investments, including opportunity zones, a second thought before moving forward.
Even while investors are skeptical about moving forward with an opportunity zone development projects, the momentum is being fueled by the announcement of new incentives for these deals.
The IRS is set to offer further tax relief for opportunity zone investments by nullifying some of the more stringent qualification factors that block many development projects from being able to claim the benefits of these specified areas of investment.
These current aid programs are making the benefits associated with opportunity zone investments more accessible, which is pivotal during these COVID-19 hardships.
While commercial real estate’s opportunity zone arena has hit a stalemate during the pandemic, this area of investment isn’t set to fall out of favor. As soon as the pandemic’s climate settles down enough to have a clear outlook on the future, expect the investor interest to pick back up again.
But, for now, keep an eye on the progress of opportunity zones. When they start to expand again, you won’t want to miss out.
With reports coming out that Google employees won’t return to offices until Summer 2021 and the likelihood many large tech companies could follow suit, the demand for office space could continue to fall.
From our perspective the longer remote work continues, the greater the chance companies and employees will find a new paradigm as far as office use goes.
Though the positives and negatives of working from home can be debated, one area which I haven’t heard anyone complain is reducing their commute down to zero. As more people better fit-out their home offices and more schools reopen, the percentage of people and companies who find the benefits outweigh the negatives is likely to continue.
As a recent article from GlobeSt.com, Breaking Down the Case for Scaling Back on Office Space, pointed out the actual cash savings for companies and employees is huge:
Global Workplace Analytics estimates that companies can save roughly $11,000 per employee with a flexible work-from-home arrangement. This decrease is attributed to savings on office leases and an increase in productivity from the employee. Employees themselves can save up to $4,000 on commuting and food costs.
As a number of recent articles have found, more and more companies are starting to look hard at these costs.
Reuters has a captivating look at how Office landlords, beware: More of corporate America is looking to reduce space
An analysis of quarterly earnings calls by Reuters found that more than 25 large companies across different sectors are planning to downsize their office footprint, posing a threat to office landlords’ bottom lines.
Ronald Philip O’Hanley, CEO of financial services company State Street, said on his company’s earnings call last week that observers “should expect and hold us to a much lower footprint really starting quite soon.”
Another article found, 40% of bank execs plan to reduce real estate footprint: survey.
While banks have begun the slow, careful process of returning employees to the office, most executives aren’t expecting everyone to come back.
A survey by professional services firm Accenture found that about 61 percent of bank executives don’t expect to call all employees back to the office. And more than 40 percent of those surveyed are also planning to reduce their real estate footprints accordingly.
CommercialObserver.com had some observations on the state of shadow office space, Is There an Excess Shadow Office Space? It’s Complicated:
Several dealmakers who usually play up the bright side of things declined to comment. Even as yet-to-be-leased, newly minted space is coming online at One Vanderbilt and at several Hudson Yards towers, and Larry Silverstein still lacks a tenant to get Two World Trade Center off the ground, Manhattan continues to lose office jobs to the pandemic, with around 150,000 office jobs lost so far amid the outbreak.
Globest.com reported some are calling for a pretty significant decline in coastal Metros, Office Space Demand Expected to Drop 10-15% as More People Work From Home
A new report suggests the office real estate sector, especially in gateway cities like New York, San Francisco and Washington, DC, will feel the pain for years from the pandemic-led work from home trend.
“The notion that a well-located office building full of highly paid workers in or near a dense, expensive city is the best way to operate a successful firm has been challenged by the acceptance of remote work,” said the report by Green Street Advisors, a real estate research company. ”Coupled with an increase in individuals who no longer regularly go into the office, many more may consider moving further away from coastal city centers.”
While many forecast a significant decline in office space around major cities the opposite forecast is being given for industrial real estate especially distribution centers and warehouses in the Mid-Atlantic. One thing is for certain, there will be change coming out of 2020. Off-market and distressed asset investors may find success looking at ways to re-purpose office space or convert existing office space into what’s needed for the new normal.
As we’ve been highlighting the commercial real estate market is seeing a lot of changes in 2020. With many people moving from densely populated coastal cities like Philadelphia and New York to more rural and urban areas, the effect on commercial real estate is just beginning.
As we continue to see more hotels and retail properties go into special servicing, savvy off-market real estate investors are going to have to look at trends to determine where to make a good investment.
Jessica Fiur, Managing Editor of Commercial Property Executive has an interesting article, Post-COVID-19, Could This Be the Next Hot CRE Asset?, with a potential good commercial real estate investment asset class, parking garages. She highlights some potential reasons why.
But could COVID-19 cause a resurgence in driving? As people go back into the office, safety and cleanliness will be at the forefront of everyone’s minds.
Fewer people may feel comfortable taking public transportation going forward. And don’t even mention Ubers or cabs or other shared driving services. Who knows who was in the car before you, and if the driver wiped everything down!
Cars might be the answer. And if so, could parking structures be the new, hot CRE asset class?
It’s already being predicted that more people will drive post-COVID-19, particularly when it comes to vacations (after all, what is a plane if not a big, flying bus?).
And people who can no longer work from home will still have to get there.
Suburban offices have to consider parking structures anyway. And the novel Coronavirus might have investors considering suburban offices going forward, at least for the near future. Even coworking spaces, which might have had some troubles at the beginning of the pandemic, might do well in the suburbs.
As she points out the move from dense urban areas to the less crowded suburbs could force suburban office building owners to consider new parking arrangements and potentially in cities, we could see more investment in parking garages.
David Randall has an interesting report in Reuters, Who still needs the office? U.S. companies start cutting space, on how more and more companies are considering reducing their office space. This will definitely end up having an impact on real estate investors and potentially could lead to the growth of rural areas. Below are a couple highlights from the article which really stood out.
One additional item mentioned in the article was the movement of people away from coastal cities and toward more open areas including the Sun Belt. While we definitely see migrations taking place, the actual time-frame may be slower than some experts are predicting. In many cases, we see the suburbs and rural areas around major East Coast cities growing in popularity as people are continuing to work from home but have some obligations which will require city office space.
This trend may change as companies move from city office space to suburban office buildings and corporate complexes. Suburban offices could see increased demand as companies look to move into less densely packed buildings.
Investors looking to capitalize on these trends should consider speaking with local investor friendly real estate agents to get local intelligence on what types of trends they are seeing in their markets.
CRE has long been a favorite place for investors to explore. Commercial investing is commonly known as being safe and reliable and this process comes with the bonus of the appreciation of wealth.
Are you thinking about investing in commercial real estate? If so, play it smart with winning strategies to streamline the process and skip over popular mistakes.
These are things 4 to consider before making the jump into commercial real estate investments:
Always Start with Due Diligence
If you’re not up-to-speed with all things commercial real estate, be sure to explore the industry before diving into any investment projects.
This is especially vital in today’s quickly-changing circumstances. New investors shouldn’t be relying on data, tips, and market insights dating years back. It’s certainly important to research the field’s history, but in light of the recent developments to global business, focusing on 2019-2020 data is key for planning current movements.
The more you know about commercial real estate, the better you’ll be able to cultivate lasting success as an investor. Read industry-related books, see what professionals have to say about their experiences, and follow some CRE community pages on social media to immerse yourself in the culture.
Organize Your Finances
As with any investment, make sure that your finances are all in order before starting any new projects. Spend some time examining your personal financial situation and make sure you’re prepared to take on the new responsibilities.
Investing in a commercial property requires a substantial initial investment. Beyond examining your own financial status, most investors will need to explore outside lending options, such as private commercial lending agencies and banks. You’ll want to get this all in line before taking the first steps.
Start Slow, But Consider Branching Out
Commercial investments cover multifamily, retail, industrial, mixed-use, office, and more. Even though they all technically fall under the umbrella of commercial properties, each sector is completely different.
Juggling multiple property types while building a portfolio can be extremely difficult. New investors should start slow and branch out over time.
There are plenty of benefits associated with owning a commercial portfolio spanning across multiple sectors. Diversified portfolios are revered for their market stability and economic resilience, so don’t avoid expansion altogether. Just make the growth is steady enough to handle in a balanced and successful way.
Be Ready to Manage Your Properties
One of the biggest differences between commercial real estate and other investment types is that properties require hands-on upkeep. New investors need to plan out how they are going to care for their portfolio assets before they make the purchase.
Commercial property management includes leasing and marketing, paying the bills, performing maintenance, basic daily upkeep, cleaning, and tenant interactions. It’s a completely new set of responsibilities so make sure that you have a standing plan to cover them.
Successful property management is the first step to a successful, profitable asset. Falling short with negligent management here can tarnish even the greatest commercial property potentials.
Good luck with your journey of commercial investments! These 4 tips will get you off to a strong start.
Right now, net-zero construction is in the spotlight of the press. To meet the updated eco-conscious business plans introduced at the beginning of 2020, many companies have committed to a net-zero model.
June 5th was World Environment Day, and in dedication to the cause, the World Green Building Council launched their latest campaign.
The #ActOnClimate movement included a net-zero goal, and the WGBCouncil announced that more than 100 companies signed The Net Zero Carbon Buildings Commitment pact to make all of their buildings net-zero in the next decade.
Obviously, this pledge has big implications for commercial real estate.
As the masses adopt the net-zero building trend, it looks like it may become the norm for CRE. Property owners who are slow to adopt this green solution may be left in the dust of environmentally-friendly competitors.
Soon, everyone will need to choose to embark on this route or not. Is this the best solution for you? Here’s an in-depth look at the details of the net-zero system and what it means for commercial real estate:
What is Net Zero?
Also referred to as zero-energy buildings, net-zero means that a property has no net energy consumption.
In a nutshell, this means that the annual total of energy consumed by the building is equivalent to the amount of energy generated on the site. Theoretically, this can be described as a building that uses 100 units of energy per year, but also generates 100 units of energy annually. Ultimately, the result of use-and-produce is balanced out.
This symbiotic system is far different from the one-sided consumption pattern where a building uses massive amounts of resources without replacing it in the big-picture.
How To Achieve this Standard?
Applying the net-zero standard means implementing green options throughout the property to balance out the annual energy usage.
Common ways to do this is through solar panels, advanced insulation, passive heating and cooling, and energy-efficient lighting. Creating a sustainable and productive green infrastructure that can generate just as much energy as the property consumes is the key to going net-zero.
Why is Net Zero Popular?
With today’s society being surrounded by environmental concerns, it’s not difficult to see why the net-zero trend is attractive to both people and businesses. WGBCouncil’s #ActOnClimate net-zero initiative is set to reduce carbon emissions by 3.3 million tons.
Commercial real estate is at the forefront of many green movements because of the large scale footprint commercial properties have on the global consumption of resources. According to the International Energy Agency, in 2019 buildings consumed 36% of the world’s fossil fuels.
With over one-third of the entire world’s used resources being funneled by the commercial scene, it’s impossible to ignore the issue. Even slight changes in this arena can yield massive benefits for green initiatives, and as more and more companies make the switch to net-zero, the trend will undoubtedly gain momentum.
Should You Adopt the Net-Zero Trend?
Sooner or later, net-zero will become the norm for commercial properties.
It’s a good idea to start thinking about how your properties can slowly convert to the net-zero goal. Even if it’s gradual, it will be a future-proof way to keep a commercial portfolio current and competitive.
As we move forward in 2020 and beyond, green concerns will only intensify. Start thinking about net-zero now to stay one step ahead.
Transitioning from teleworking back into the office space is filled with challenges. Beyond getting back into the ‘old’ ways and keeping the space sanitized, there are more serious and intense ramifications that can come about from the decision to open back up.
There are some key employment law issues that need to be addressed as the option to return to the office is introduced.
It’s not as simple as just sending out an email announcing the move and expecting your team members to follow the order. In reality, this is a precarious situation that can incur major legal issues.
The only way to navigate through this unprecedented situation is to be aware and ready to handle any potential issues following the ‘back to work’ announcement. Here are some key points that businesses should keep in mind as they move forward with re-openings:
Understanding Your Team
While the ultimate decision to re-open may lie in the hands of a single boss or higher-up in the business, it’s undoubtedly a choice that impacts many people. Re-opening during the coronavirus period is not a decision to make lightly.
A portion of the team will inevitably refuse the call back into the office. This is because many people are fearful to re-enter the workforce, they don’t want to stop abiding by the ‘safer at home’ recommendations, and they don’t want to put themselves or their families at risk from interacting with others.
In the wake of a pandemic, these are all more than valid points that must be taken into consideration before making the decision to go back to work.
What Team Leaders Can Do
If you are planning to open back up, play it smart. These 3 tips will help your company ease back into the traditional workflows and mitigate reopening-induced legal incidents.
Legal Considerations for Calling Teams Back to Work
Even if a company is seamlessly prepared to reopen, there will almost certainly be some turbulence along the way.
Team members who aren’t ready to stop teleworking, whether it’s due to fears of the virus or standing responsibilities, will likely be something you need to deal with. Here’s what you need to know about these incidents to mitigate the legal risks:
Mainly, a refusal to return to work cannot legally be considered as quitting or a valid reason to let someone go. In reality, many circumstances make this claim completely valid.
For example, team members that live in an area still enforcing stay home orders or ones who don’t have a safe transportation method to go to and from the office will have legitimate issues. Team members who have been exposed to COVID or have tested positive certainly cannot return to work, but they cannot be fired because of this, either.
Company owners who go against this will be the ones in the wrong and can be charged for these actions. Be careful, communicate, and respond with care.
In the end, erring on the side of caution is a must as re-opening becomes a close reality for businesses all around the U.S.
Looking to up the prospect intrigue of your office space?
In these times, it may be a good idea to upgrade your office building to make it the very best it can be. These are 5 physical building updates that can be made right now to appeal to tenants:
Create Flexible Branding Areas
Strategizing is all about knowing your target audience.
As company culture is top-of-mind for businesses right now, it may be wise to provide your tenants with the ability to proudly embrace their brand. Office tenants will likely want to express their corporate identity somewhere in their leased space, so consider adding an area to do so.
Not only does this provide a perk that many competing office assets do not offer, but it also will help make your office feel more like a permanent home for their business.
Consider setting aside a wall that can easily be repainted or refurbished where tenants can post their company logo in a large scale format. Make sure to include this point in your market listings as a company culture bonus!
Even before the new social distancing concerns relating to the pandemic privacy pods were already a popular feature within the office space.
In the contemporary lens, it helps support a safe and healthy work environment for team members and other tenants. However, they also come along with the added benefit of reducing noise and distractions in the workplace and providing a quiet space for team members who need to focus.
These reasons and more are making privacy pods a highly coveted aspect of office assets, so consider investing in these for your space.
Health and Wellness Considerations
Tenants are looking for a healthy and positive space to house their business. Adding a touch of nature to your office space can breathe fresh life into even the most outdated buildings.
Large windows, open-air, outside spaces, and natural lighting will provide the proper balance that tenants are looking for. Low-light indoor plants will elevate the overall design of the space.
These upgrades are known to reduce stress and cultivate a happier and healthier workspace environment – something that tenants cannot resist.
Smart Technology is a major avenue of competition for commercial office leasing.
Upgrading your office space with some strong Smart Technology additions can significantly boost the property’s tenant appeal. Smart locks, security systems, temperature controls, screens, and speakers are all great places to shop around.
Not only do these improve the tenant experience, but Smart Technology is known to significantly reduce utility usage which can save your tenant money on their monthly bills.
The Little Things Count
Not all office building upgrades need to be extreme. The little things count, too.
Don’t underestimate the value of a fresh coat of paint, some new fixtures, and a beautiful landscaping job. Spend time fixing up the detailed elements of your property independent or in addition to the bigger projects. Office tenants care about the full picture, not just the wow factors.
Get the most out of your office portfolio by enhancing your assets with these 5 tips and watch tenant interest soar.
As markets dip their toes into the reopening process and stores are welcoming shoppers through the door again, retail is facing never before seen challenges.
Here are a few of these issues that retailers are dealing with while operating amid COVID:
Pressure from Wary Consumers
We all knew that regaining consumer trust wouldn’t be easy for the commercial scene. One of the greatest challenges retailers are facing today is consumer distrust. Retailers are responsible not only for keeping the store safe and clean but also to ensure that guests feel that way, too.
This is being accomplished by relaying the new measures and protocols for cleaning on signs and through store-wide announcements.
Masks are a must to enter, hand sanitizers can be found at every corner, one-way signs are along the floor to guide traffic, and social distancing reminders are posted on aisles.
Keeping Up with Sanitation
The reopening process is all about keeping the space clean. Sanitation needs are more extreme than ever before as stores are dealing with a totally unseen retail atmosphere.
Stores are dealing with the new demand for disinfecting by increasing their cleaning staff, embarking on hourly clean-ups, and wiping down high-traffic areas after each use. Merchandise that is handled by shoppers is taken off the floor and put into a separate bin for sanitation while carts and baskets are disinfected upon return.
COVID revealed that cash payments can be a large hazard for shoppers and store workers. After discoveries that the coronavirus pathogen can stay alive and active on paper-substances for an alarming amount of time, cash became a taboo for many businesses.
Right now, some retailers are going completely cashless to avoid the risks altogether. Others have certain lanes for cash payments and others for cards only.
Moving forward, we may see brands opting for self-checkout and other cashierless methods to deal with the challenges posed by paper currency during virus outbreaks.
Limitations on Supply
COVID’s global impact on the supply chain was one of the greatest disruptors that modern society has ever experienced. Shipping delays, backorders, oversupply, and other inventory stresses were the norm for any retailers that stayed open these past few months.
Now that markers are reopening, the supply chain situation remains outside of the norm. Distribution and import issues, changing consumer preferences, and a massive e-commerce boom are forcing physical stores to rethink the way that they’re selling and ordering their goods.
Keeping Team Members Protected
On-site teams need to be at the forefront of retail concerns as doors are reopening to welcome guests.
The customer is always right, but COVID is funneling more attention to team members that are on the floor. After all, it is team members that are keeping business afloat in these difficult times. If a team member would be compromised, it would be a major hit to the brand and store location.
All this and more is being done within retailers to maintain a safe and healthy staff. In the future, expect to see stores designed with enhanced measures in place to keep everyone protected.