Retail, Office & Industrial Spaces

by Christopher Levarek

“Change is not a threat, it’s an opportunity. Survival is not the goal, transformative success is.”

- Seth Godin

Last week I discussed the change in buying habits of the American people and how this affects other industries and areas of real estate. Today we look at the changing areas of real estate and possible opportunities to be had.

In real estate, it is by looking at the data one can be in the right place at the right time. If a market or type of real estate is low, it presents an opportunity for an investor to enter. Although our specialty is Multifamily real estate at present, I aim to offer further insights or possibilities for future investments to the reader based on current information and trends. Let’s jump in!

Office Space

If the year of 2020 has taught businesses anything, it is that office space is not a necessity for many businesses. With so many people working remotely due to Covid restrictions or safety measures, our cities are filled with large office buildings near empty save a few workers.

According to a May 2020 Stanford University survey, up to 60% of U.S. economic output was dependent on working from home, with 42% of all workers working from home, 33% of workers not working at all, and only 26% of workers commuting.

Other companies and businesses have halted moves or builds or canceled leases on would be new office space, such as the near $90 million 490,000 SF Lease by Pinterest in San Francisco. One can only imagine how the real estate brokerage feels losing that commission or fee.

Herein represents opportunity for a real estate investor. Office space needs will not be going away completely however they are changing. Perhaps office or commercial space can be purchased at a low today as leases are let expire during this time and modified for future demand.

What if one were to carve up large office space into smaller leasable units to smaller businesses or other business types?

What if the business model changed for the office space to having more spaces for virtual working rooms or quiet spaces?

What if opportunity was to be had by including in these changed office spaces other amenities such as well-placed gyms, bars/restaurants and outdoor lounging or work areas?

Retail Space

As discussed in our previous article on American spending habits, Americans are no longer frequenting retail or buying in person. Although this trend was already well underway, the events of 2020 amplified the already growing numbers of online purchases. Retail giants such as Neiman Marcus, J. Crew, J.C. Penney, Nordstrom and Sears are just some of the many that have either shut their doors or in some cases filed bankruptcy

For 2019, over 9,300 store closings were announced in the U.S. alone and in 2020 some 12,000 major chain stores are predicted to close according to Business Insider and Cushman & Wakefield.

As these large retail malls shutdown and for many close the door on how people will be buying in the future, we have to look at how such space will be used going forward. Will all purchase be online? I would argue that this will not be the case however the buying experience will change. No longer will large shopping malls with many varying little stores be the desired shopping experience.

However, much of this retail space can be shifted into other areas that will be in demand. Areas such as Delivery Centers or Warehouses will be in high demand going forward.

Industrial Space

As the online shopping giants continue to expand their inventory, delivery centers and warehouses will be needed to store such goods. In addition, the United States will not quickly forget the lack of inventory that was experienced during the height of the pandemic in goods such as hand sanitizer, toilet paper and more.

One can expect warehouses will be in much more demand and the shifting retail space could even provide just the ticket. According to a recent July article by JLL, the United States will need 1 billion additional square feet of warehouse space by 2025.

Much of this demand comes from the massive growth in eCommerce and in fact this same article shows that Industrial Real Estate transactions or leases related to eCommerce business is up to 50% whereas it use to only account for 35% of this space. Simply put, more warehouses and delivery centers are in demand in the Industrial space.

We can expect this demand to increase as our economy leans more on eCommerce and long term supply for the future. So how can the real estate investor find opportunity here?

Will large plots of land become ideal just outside major cities for developing Warehouses?

What types of buildings would be easier to convert into a Delivery Center?

Would it be beneficial to buy an aging retail or office building and convert it to a delivery center or warehouse?

In Final

We hope this article shined a light on some shifts in the retail, office and industrial spaces. As we continue to seek opportunity, perhaps Valkere Investment Group will turn to look at some of these spaces as well. Although, multifamily is our current focus, it is always wise to be in the right place at the right time in real estate. Either way, we hope reader will be positioned after reading this article to be there when it matters. Invest Smart!