{"id":1004671409,"date":"2023-07-10T03:19:58","date_gmt":"2023-07-10T11:19:58","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004671409"},"modified":"2023-07-19T04:15:16","modified_gmt":"2023-07-19T12:15:16","slug":"the-big-city-rebound-and-its-cre-implications","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/the-big-city-rebound-and-its-cre-implications\/","title":{"rendered":"The Big City Rebound and Its CRE Implications"},"content":{"rendered":"
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Image by gremlin\/iStockphoto.com<\/em><\/p><\/div>\n

The pandemic established new commercial real estate winners and losers by sector and geography. In the aftermath, with a population shift back to big cities<\/a>, the dynamics dictating CRE market movement shuffled the cards once more, reasons Moody’s Analytics<\/strong> Senior Economist Ermengarde Jabir.<\/p>\n

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READ ALSO:<\/strong> Real Estate Market Sentiment Improves<\/a><\/p>\n

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The COVID-19 era of 2020-21 witnessed a population migration away from urban centers, particularly in Northern states, Jabir said. But since 2022, many metros considered pandemic losers have enjoyed a net positive population inflow<\/a>. New York City has seen a modest gain in residents, Miami and Houston have witnessed large increases, and Seattle, San Francisco, Los Angeles and Chicago have watched out migration decline.<\/p>\n

Office pains still in the books<\/h2>\n

CRE demand is directly impacted by population shifts, Jabir emphasized. The office sector was insulated in 2020-21 by the longer lease terms of the asset class and uncertainty about office returns, she added. But preliminary second-quarter 2023 vacancy rates of 18.9 percent are nearing historic highs of 19.3 percent set in 1986 and 1991.<\/p>\n

Population shifts and office occupancy levels directly impact urban retail, she continued. While remote work has taken a toll on street-level urban retail in major metros, it\u2019s proven a plus for neighborhood and community shopping center retail.<\/p>\n

\u201cThose who moved away from large urban centers as a result of the pandemic are now shopping more frequently where they live,\u201d Jabir said, noting that for this retail category, vacancy peaked at 11 percent in 2011 but has since declined. It is expected to end 2023 at 10.2 percent, and fall below 10 percent in the outer years of Moody\u2019s Analytics\u2019 forecast.<\/p>\n

Industrial’s hard shell<\/h2>\n

Turning to the industrial sector, Alliant Credit Union<\/strong> is reluctant to advance money on retail and office classes relying on density to drive growth, said Steve Wyent, commercial real estate lending underwriter for the firm. The same isn\u2019t true of industrial.<\/p>\n

\u201cWe have been bullish on industrial due to the resiliency of this asset class and the fact it doesn\u2019t seem to be affected by demographic shifts in the overall population from urban core to suburban,\u201d he said. \u201cIt also doesn\u2019t seem to be negatively affected by migration out of older urban areas experiencing population declines.\u201d<\/p>\n

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READ ALSO:<\/strong> Nearshoring Boosting Supply Chain Resilience<\/a><\/p>\n

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Markets that have experienced greater in-migration since 2019 have greater newer industrial supply as a percentage of total availability, he reported, adding, \u201cHowever, all markets saw strong double-digit growth in industrial supply.\u201d<\/p>\n

Paired with reduced vacancies indicated by Moody\u2019s Analytics\/REIS data for markets as a whole 2016 to 2023, \u201cthis would suggest strong absorption across the board,\u201d he said.<\/p>\n

Ready to gain: NYC, Chicago, Philadelphia et. al.<\/h2>\n

Though working nationwide, Glenn Brill, managing director of FTI Consulting<\/strong>, is based in Brooklyn and keeps a close eye on New York City. He\u2019s unsure whether New York\u2019s rebound will translate to office demand, noting different sectors are responding differently to hybrid work.<\/p>\n

\u201cJPMorgan Chase is building a 2 million-square-foot office tower on Park Avenue, and I believe they will expect people to work on site,\u201d he noted.<\/p>\n

As population rebounds in New York City, Brill believes retail and industrial will strongly benefit. \u201cRetail in New York City is really a leisure-time activity for lots of folks,\u201d he said. \u201cThey shop in brick-and-mortar because they want to, it\u2019s fun, and they have money to spend. And New York City has the best and the most unique brands. The same is true of restaurants. The rebound in population is very positive.\u201d<\/p>\n

New York City industrial growth is fueled by desire for convenience and home delivery, a big pandemic-era gainer. A population rebound sparks convenience purchasing.<\/p>\n

\u201cIt\u2019s very positive for industrial space focusing on last mile, just-in-time deliveries and inventories,\u201d Brill said. \u201cEffectively, the delivery companies want to get closer to their customers. (…) Go out to Red Hook in Brooklyn, Amazon has put up a very large box, not 1 million square feet, but not small, and there to deliver to Brooklyn households.\u201d<\/p>\n

The industrial sector of other major metros is also enjoying growth, even in cities like Chicago and Philadelphia losing population before the pandemic and continuing to shed denizens during COVID-19, Wyent said. Basing his findings on Moody\u2019s Analytics\/REIS data for the markets as a whole from 2016 to 2023, he reported Chicago witnessed a total increase in asking industrial rents of 37.4 percent and a decrease in industrial vacancy from 7.8 to 2.6 percent. Philly saw an increase in asking industrial rents of 50.4 percent and decrease in industrial vacancy from 8.7 to 3.3 percent. These numbers were in the same ballpark with Phoenix and Fort Worth, two metros that have been among those experiencing the greatest in-migration in recent years.<\/p>\n

South Florida grows some more<\/h2>\n

Meantime, metro Miami has witnessed a major increase in new residents across every demographic and from many countries, said Ben Jacobson, partner with Forman Capital<\/strong> in Palm Beach, Fla. \u201cI\u2019ve not seen the office market slow down at all,\u201d he said. \u201cYou\u2019re seeing a lot of the firms moving into Class A towers are new entrants to the Miami market<\/a>. We haven\u2019t seen a lot of tenants upgrading much. But if you\u2019re a law firm from New York City, Miami is still considered a value. Filled up? I don\u2019t know about that.<\/p>\n

But we haven\u2019t seen a softening in the office market. (…) A lot of tech firms are asking for all classes, A, B and C. Some don\u2019t want Class A, they want open floorplans and even want them in industrial settings that might be Class B or C.\u201d<\/p>\n

As for industrial growth in metro Miami, he said, \u201cLast-mile distribution centers are popping up all over the area, and there is definitely a lot of growth in demand.\u201d<\/p>\n

Also bullish on South Florida\u2019s office market vis-\u00e0-vis other big cities is Todd Rosenberg, co-founder & managing partner of Pebb Capital<\/strong>.<\/p>\n

\u201cWhile work-from-home and hybrid configurations will take a bite out of overbuilt office markets such as Chicago, Los Angeles, Washington, D.C., and New York, submarkets like Southeast Florida are growing because they never had a lot of office supply before,\u201d Rosenberg said. \u201cOver the past 30 years, development was concentrated on condos, apartments and hospitality. (…) South Florida still does not have enough office to supply the companies looking to open even their smaller footprints here.\u201d<\/p>\n

Valley of the Sun growing<\/h2>\n

In Phoenix, the largest commercial projects tend to be manufacturing and technology-focused. So said Anita Verma-Lallian, founder of Arizona Land Consulting<\/strong>. Taiwanese chipmaker TSMC is planning a second semiconductor chip factory<\/a> in North Phoenix, Intel is developing<\/a> two new plants totaling $20 billion in Chandler, while KORE Power continues<\/a> building its battery cell manufacturing plant in Buckeye.<\/p>\n

Along with LG Energy Solutions\u2019 $5.5 billion investment in its Queen Creek facility, to be North America\u2019s largest stand-alone chipmaker, the industrial development puts Arizona in the forefront in developing and manufacturing technology, Verma-Lallian reasoned.<\/p>\n

Of the big city rebound, Brill remarks, \u201cIt\u2019s obviously very positive, because it creates household formation. With more people working, more people buying homes and more people shopping the effect is you\u2019re going to get more economic activity, and that flows down to real estate where people live, work and play.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

With key demographic trends reversing, are gateways getting a second wind?<\/p>\n","protected":false},"author":450,"featured_media":1004671437,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,22251,21748,23891,21742,21747,21749,51037],"tags":[46790,37237,34231,42812,51131],"class_list":["post-1004671409","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-in-focus","category-industrial","category-national","category-latest","category-office","category-retail","category-trends","tag-alliant-credit-union","tag-fti-consulting","tag-moodys-analytics","tag-pebb-capital","tag-todd-rosenberg"],"acf":[],"yoast_head":"\nThe Big City Rebound and Its CRE Implications - Commercial Property Executive<\/title>\n<meta name=\"description\" content=\"Where key commercial real estate sectors, markets stand amid reversing population trends in the wake of the COVID-19 pandemic.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/the-big-city-rebound-and-its-cre-implications\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Big City Rebound and Its CRE Implications\" \/>\n<meta property=\"og:description\" content=\"Where key commercial real estate sectors, markets stand amid reversing population trends in the wake of the COVID-19 pandemic.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/the-big-city-rebound-and-its-cre-implications\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2023-07-10T11:19:58+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-07-19T12:15:16+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/07\/iStock-1262418795-Image-by-gremlin.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"900\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Jeffrey Steele\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/the-big-city-rebound-and-its-cre-implications\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/the-big-city-rebound-and-its-cre-implications\/\",\"name\":\"The Big City Rebound and Its CRE Implications - 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