The future of commercial real estate
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
The future of commercial real estate
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
7yLuka,
That is a typical thought from those not experts in the retail space.
Economists are predicting online to tap out at 20% of all retail sales and most of that is clothing and knick knack type orders.
The U.S. does have some of the highest retail inventory in the world on a per sq ft basis. What you will typically find is that cold belt states are more heavily overbuilt versus demand whereas many warm belt states are expanding so if one space goes dark under a 20k sq ft box then many tenants ready to jump inline and expand in that area.
No retail apocalypse here. Neighborhood retail under 20k sq ft is doing incredible. I practically have to beg owners to try and sell as they want to keep almost forever. I have been busier than ever transacting. Tons of buyers want retail STNL and MTNL because it is very passive compared to other asset classes such as SFR, and multifamily for yield and returns.
It does take a lot of capital to play in this space for quality. All of my clients are pretty much millionaires to multi-millionaires.
The larger box sizes of 60k to100k sq ft if in a good location will easily get re-adapted with a new tenant or mixed use. It's the stuff like K-mart anchor in tiny towns that goes out is very hard to repurpose. The box shells are outdated for what tenants want today. So in those small towns you might get only 3 to 4 a foot for rent from self storage, church facility, flea market,etc. If the roof is gone that alone can be many hundreds of thousands of dollars to fix and then a/c units etc. The repairs are almost more expensive than scraping the building and starting over except the small towns where it does not make economical sense to do so.
8 Replies
- Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes7y
Not totally accurate. Even if most of the businesses are online, they need warehouse space to get their orders out quickly. Food will always have online order and delivery, so they may take less retail space, but the dining/beverage industry is not going anywhere. People like to eat and drink out. Personal service industry is another good one. While it's typically mom and pops and not nationals, which are preferable, people always want to get their nails and hair done somewhere. Brick and mortar is not going anywhere for a long time in most industries. The ones being hurt hardest would probably be banks, which are primarily online now, and clothing stores, though stats show that they are actually not hurting as much as you would think and like I said, they still need somewhere to get their product out of. I don't anticipate a crash from technology. People are into instant gratification and also, the older generation, which is a majority of the population at this point, still want to see their doctors in person and urgent care centers for example can take tests and xrays, which is limited obviously online. Again, not worried, but we shall see!
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes7y
Luka,
That is a typical thought from those not experts in the retail space.
Economists are predicting online to tap out at 20% of all retail sales and most of that is clothing and knick knack type orders.
The U.S. does have some of the highest retail inventory in the world on a per sq ft basis. What you will typically find is that cold belt states are more heavily overbuilt versus demand whereas many warm belt states are expanding so if one space goes dark under a 20k sq ft box then many tenants ready to jump inline and expand in that area.
No retail apocalypse here. Neighborhood retail under 20k sq ft is doing incredible. I practically have to beg owners to try and sell as they want to keep almost forever. I have been busier than ever transacting. Tons of buyers want retail STNL and MTNL because it is very passive compared to other asset classes such as SFR, and multifamily for yield and returns.
It does take a lot of capital to play in this space for quality. All of my clients are pretty much millionaires to multi-millionaires.
The larger box sizes of 60k to100k sq ft if in a good location will easily get re-adapted with a new tenant or mixed use. It's the stuff like K-mart anchor in tiny towns that goes out is very hard to repurpose. The box shells are outdated for what tenants want today. So in those small towns you might get only 3 to 4 a foot for rent from self storage, church facility, flea market,etc. If the roof is gone that alone can be many hundreds of thousands of dollars to fix and then a/c units etc. The repairs are almost more expensive than scraping the building and starting over except the small towns where it does not make economical sense to do so.
- 7yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
Originally posted by @Joel Owens:
Luka,
That is a typical thought from those not experts in the retail space.
Economists are predicting online to tap out at 20% of all retail sales and most of that is clothing and knick knack type orders.
The U.S. does have some of the highest retail inventory in the world on a per sq ft basis. What you will typically find is that cold belt states are more heavily overbuilt versus demand whereas many warm belt states are expanding so if one space goes dark under a 20k sq ft box then many tenants ready to jump inline and expand in that area.
No retail apocalypse here. Neighborhood retail under 20k sq ft is doing incredible. I practically have to beg owners to try and sell as they want to keep almost forever. I have been busier than ever transacting. Tons of buyers want retail STNL and MTNL because it is very passive compared to other asset classes such as SFR, and multifamily for yield and returns.
It does take a lot of capital to play in this space for quality. All of my clients are pretty much millionaires to multi-millionaires.
The larger box sizes of 60k to100k sq ft if in a good location will easily get re-adapted with a new tenant or mixed use. It's the stuff like K-mart anchor in tiny towns that goes out is very hard to repurpose. The box shells are outdated for what tenants want today. So in those small towns you might get only 3 to 4 a foot for rent from self storage, church facility, flea market,etc. If the roof is gone that alone can be many hundreds of thousands of dollars to fix and then a/c units etc. The repairs are almost more expensive than scraping the building and starting over except the small towns where it does not make economical sense to do so.
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- Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes7y
So large multi-family is continuing to be a top performer. High inputs of capital, low cap rates, sustainability across the board.
Retail is seeing slightly higher cap rates, however retail is going through an intervention. Big box is no more except your show runners such as Target that are able to keep their market share by reinventing themselves for the customer experience. Flex space and creating value for "experience" is what is going.
Industrial, another top performer. Low cap rates across the board with basis points lowering by the quarter. I am an industrial broker with a large shop and we are seeing increasing barriers to entry especially in in-fill locations with little to no vacancy, however development opportunities by big players such as Opus and Duke being created due to a need for distribution hubs and the e-commerce effect. Exciting stuff actually.
Haven't explored office much.
- Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes7y
@Luka Milicevic I'd agree with most of the comments above. I own quite a bit of office and a little retail. I would like to own more retail but it is hard to find good properties right now. But i have invested in REITS and private placements and all of them are doing really well. Yes, there are headwinds because of the internet. But that also means that very little new supply is getting built.
Also if you look at what is going on with bigger companies that rent space in better areas you'll see that they are having no problem replacing the tenants that leave with new ones.
People will not just buy a place to live and stay there and only connect to the outside world only via the internet. Just ask anyone who works from home if they would prefer to sometimes be in a really cool office environment with colleagues. Or listen in on a conference call with several dogs barking/babies crying because everyone is at home.
Commercial real estate is evolving for sure but I think that just means opportunity.
- Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes7y
What are you seeing in terms of office space? I'd think companies would be moving more people to work from home, but then I see non stop office space being built and existing space being renovated. I imagine the folks building these million dollar projects know what they are doing.
- Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes7y
@Jeff Kehl Makes perfect sense. See my comment above regarding my question about office space. I guess you answered already
- 7yBob LangworthyPro MemberAccountant · Brunswick, ME · Member since 2017 · 354 posts · 242 votes
All real estate is local so the impact of online retail is going to vary widely. I have seen several large retail centers repurposed away from retail to: medical, event space, churches, condos.
The bottom line: there will always be a need for four walls and a roof. The contents might change, but the structure will be needed.
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