Brokers Readjust Their Thinking in a Post-Pandemic Market
Office and industrial properties present a tale of two markets, post-pandemic. On the one hand, the industrial sector has exploded, as providers of product continue to ensure that grocery shelves remain stocked while keeping pace with the accelerated demands of e-commerce. On the other hand, the pandemic is forcing office occupiers to pause and rethink their space needs, even to the point of downsizing to the relatively open spaces of the suburbs with renewed interest.
Like market conditions themselves, the result is clear: as Chicago-based David Liebman, SIOR, designated managing broker for Merit Partners LLC says, brokers now need to get into a new head space to “understand what exactly their clients want, to a greater degree than ever before.”
WORKING A LANDLORD'S MARKET
Manufacturers of virtually all products were, like the rest of the world, caught off-guard by the sudden onset of the virus, hence the suddenly empty store shelves. They scrambled to redefine their inventory strategies and ensure product—and the space to store them—were sufficient for the demand. Simultaneously, a spike in internet sales drove the need for distribution centers and put last-mile delivery front and center. “Companies have really changed the way they distribute their products,” says Pete Quinn, SIOR, national industrial sales director for Colliers in Indianapolis, Ind.
Indeed. At the end of what his firm dubs “a record year,” he shared that occupancy gains totaled 273.1 million square feet, almost 19 percent higher than a year ago, and projected that “2021 is already shaping up to be another steadfast year.”
According to Gary Ralston, SIOR, one of the major trends that COVID-19 accelerated is going to be a greater emphasis on last-mile locations for eager consumers who expect their online orders today. (CNBC, quoting Labor Department statistics, put the increase in online sales at 30% for the first half of 2020 alone.)
“It will change industrial in a meaningful way,” says the Lakeland, Fla. managing partner of SVN | Saunders Ralston Dantzler Real Estate. “We’re going to see more focus on space closer to the consumer to address that last mile.” He adds that spaces, formerly occupied by big-box retailers hit hard by the pandemic, will find new purpose with “people like Amazon and Walmart.” But despite the number of shuttered retail stores, industrial uptake is not a slam-dunk in a market with dwindling availability.
One creative solution is the increased popularity of B and C industrial spaces, older facilities passed by as obsolete . . . that is, before the space crunch. In fact, fueled by tax breaks and local incentives, Amazon leased more than 22 million square feet of warehouses in the Chicago area alone in 2020, a presence that put a serious squeeze on other potential tenants. The mega-player has single-handedly “skewed the industrial market in its favor,” says Liebman, “so a lot of class A space is now off the market.” In what he calls the trickle-down effect, those other users now “have to resort to Class B spaces.”
Read the full article in the Summer 2021 issue of SIOR Report now!