The impact of the pandemic on industrial and retail real estate continues

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Trucks are loaded at the Long Beach Container Terminal on Thursday 19 August 2021. The increased activity at Long Beach Port has been a boon for the local industrial real estate sector. Photo by Brandon Richardson.

Thanks to the increase in e-commerce and freight traffic through the port of Long Beach, industrial real estate has been in high demand throughout the pandemic, leading to lower vacancies and higher prices.

Retail, on the other hand, has been hit by the pandemic, with many businesses shutting down due to economic stalls, while others are still struggling.

“Overall, there is strong demand and very limited supply,” said Ryan Endres, CEO of Lee & Associates Commercial Real Estate Services, of the industrial market. “The ports are handling containers at an all-time high and I don’t think it will slow down anytime soon.”

Over the past 12 months, Endres said, Long Beach has set new cargo volume records, driving demand for third-party logistics and fulfillment companies, warehouses and warehouses. He added that the US as a whole needs just over 300 million square feet of new industrial space to meet current demand for e-commerce businesses.

But location in and around Long Beach is hard to find, and undeveloped land is scarce, especially near the ports of Long Beach and Los Angeles. And Endres said he doesn’t expect that to change anytime soon.

According to reports from Lee & Associates, industrial vacancy was 1.1% in the second quarter of this year, up from 1.7% in the first quarter and 2.4% in the second quarter of 2020. According to Endres, the “healthy market” is less than 7-8%.

Strong demand put pressure on average asking rent, which rose from $ 1.09 per square foot in the second quarter of 2020 to $ 1.13 per square foot in the second quarter of this year. The average selling price of industrial space per square foot rose significantly from the previous quarter to $ 286.14. The increase comes after a significant decline from $ 244.75 per square foot in the second quarter of 2020 to $ 180.41 per square foot in the first quarter of this year.

With Relativity Space’s 1.1 million square feet lease of the former Boeing C-17 site and a limited number of new products online or released, the industrial market experienced a positive takeover of nearly 1.64 million square feet. The first quarter takeover was 186,697 square feet.

“Many retailers continue to ship goods ahead of the holidays, so this means additional warehouse space, distribution and storage is required,” Endres said, noting that the increase in port traffic has also created a need for additional storage space for shipping containers. “This is an immediate problem because the existing space is full.”

Retail Struggle
The Rock Bottom brewery in Downtown Long Beach closed just a few months due to the pandemic after government orders forced the restaurant to close its doors indefinitely. Thursday 19 August 2021 Photo by Brandon Richardson.

According to Lee & Associates executives Noel Aguirre and Sean Lippmann, the companies occupying the retail space – restaurants, bars, goods, services and entertainment – have been particularly hard hit by COVID-19. But the state-wide real estate market has not yet felt its full impact due to the state’s moratorium on commercial evictions running until September 30th.

The moratorium kept the vacancies and ask for rent at a stable level – at the moment. However, after the moratorium expires, other businesses are likely to close, Aguirre said.

According to Lee & Associates reports, the vacancy rate in downtown shopping centers decreased from 5.4% to 5% qoq, while the vacancy rate in the suburbs increased marginally from 5.5% to 5.7 %. Average asking rent in downtown and suburban markets has declined 1.3% and 1%, respectively, to $ 2.66 and $ 2.32 per square foot over the past 12 months.

Downtown’s net takeover in the last 12 months was 4,600 square feet in the second quarter, while the suburban market suffered a negative takeover of 156,000 square feet in large part due to several large vacancies, including the former Best Buy in Marina Pacifica. and Gardening Equipment on the Long Beach Exchange.

“From a visual standpoint, it’s not as difficult as it was during the Great Recession,” Aguirre said, noting that many of the closed businesses were already struggling and the pandemic was just the final nail in the coffin.

Retail activity has grown significantly since the June 15 opening, Aguirre said, and business has been boosted by high vaccination rates in Long Beach. But further recovery depends on wider labor return, he added. Many workers chose not to return to work, especially those paying the minimum wage, due to rising unemployment benefits and other factors.

The mandatory cessation of personal food intake for several months harmed food and beverage operators, forcing some to close their doors. But similar businesses are leading the way in the backfill business, Lippmann said. New restaurant concepts are moving into shuttered restaurants, he said. Use in medicine, education and boutiques is also a driving force for filling vacancies, Lippmann said.

“We’re tough,” Aguirre said. “As long as creative minds are in the marketplace, they find a solution. But in this environment, everything can change quickly – a new option or something else can derail us. It’s fragile.”

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