Commercial Investment Real Estate Summer 2020 | Page 10

MARKET TRENDS
OFFICE RENTERS CHANGE
PRIORITIES IN WAKE
OF PANDEMIC
RECREATIONAL
REAL ESTATE ON THE RISE
CASE STUDY: COVID-19’S
IMPACT ON EASTERN PA
BIG-BOX MARKET
OWNERS HAVE
RESERVATIONS AS
OCCUPANCY DROPS
Office demand fell off a metaphorical
cliff in 1Q2020 in the
face of the COVID-19 pandemic,
according to research
published in April by Jones
Lang LaSalle. Leasing activity
dropped to 45 million
sf in 1Q2020. The decline,
though, started earlier in
2019, dropping from 68 million
sf in 1Q2019 to 57 million
sf in 4Q2020. Overall absorption
in 1Q2020, including
coworking space, barely
topped 5 million sf, by far the
lightest first quarter since the
Great Recession.
The JLL research noted
that only 4.9 percent of office
workers will be comfortable
working exclusively from
home. But three in five workers
still plan to work a considerable
portion of their week at
home. Such preferences could
reduce overall demand for
office space, focusing instead
on privacy and separation
from coworkers, in contrast
to recent trends emphasizing
open workspace and increased
employee density.
While there’s plenty of economic
news that isn’t that positive
at this time, some sectors
of real estate could be poised to
benefit from changes resulting
from the COVID-19 pandemic.
In a Virtual Round Table
hosted by the National Association
of REALTORS® Land
Institute, Justin Osborn, ALC,
with the Wells Group Durango
in Durango, Colo., highlighted
possible growth in recreational
real estate. He pointed to
potential buyers “just looking
to get away with all the sports
clubs [and] recreation centers
shut down; people just can’t
get out to spend time as a family
recreating like they were
able to before all this started.”
While demand through
March ticked slightly up, Osborn
noted that many transactions
are smaller in acreage,
which could mean many buyers
are first-time purchasers
or individuals looking to own
a private space to “hunt to fill
their freezer.”
It’s difficult to encapsulate the
consequences of the global
pandemic, considering the
variety in size and offerings of
retailers. A recent Colliers International
white paper details
how 24 percent of Eastern
Pennsylvania retailers with
more than 500,000 sf were
at high risk for disruption,
including sectors such as consumer
durables, non-food retail,
apparel, and automotive.
Conversely, 49 percent
were considered at low risk
— including food and beverage,
pharma and medical,
and essential retail — while
e-commerce, which accounts
for 12 percent of all square footage,
is at a positive exposure.
The risks vary geographically,
with Northeast
Pennsylvania facing more risk
thanks to over 5 million sf of
apparel space, accounting for
18 percent of its total space.
In contrast, 62 percent of the
Central Pennsylvania submarket
is either low or positive
exposure, thanks to a large
footprint from food and beverage
retailers.
When COVID-19 went from
potential economic disruption
into the force that shut down
the United States in March,
hospitality was perhaps the
hardest hit sector of commercial
real estate. The data
matched the narrative, with
occupancy dropping 15.9 percent
and demand falling 14.2
percent, according to 1Q2020
figures released by CBRE.
While every corner of
the market felt the impact of
the pandemic, high-end hotels
were disproportionately affected.
Of the 5,266 hotels to have
closed through April 10, more
than half were upper midscale,
upscale, upper upscale, or
luxury. The 234 luxury hotels
represent 64.3 percent of all
rooms in that category.
Budget hotel chains saw
occupancy drop significantly
through the first four months
of 2020, with economy outlets’
occupancy falling from 52 percent
to 37 percent. But those
declines are relatively mild,
with luxury chains seeing occupancy
free fall from almost
70 percent to 10 percent.
This page, left to right: Colorblind, Chakarin
Wattnamongkol, Kathrin Ziegler, Andresr
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE
SUMMER 2020