Long Beach, California 2021-05-08 10:00:30 –
Each of Long Beach’s commercial real estate markets (office, retail and industrial) has been affected by the coronavirus in different ways. So far, the office market has been hit hard, according to industry experts, but the future of the retail market remains questionable. Meanwhile, the industrial sector was supported by the dramatic increase in online shopping brought about by COVID-19.
According to Cushman & Wakefield data, the office market on the outskirts of Long Beach has not survived the pandemic, with overall vacancy rates in the first quarter rising from 13.2% in the year-ago quarter to 20.9%. Vacancy rates in the downtown market in the first quarter also increased by nearly 3% to 21.5%.
According to Jason Fine, managing director of commercial real estate company JLL, many companies are rethinking the dynamics of working from home and the amount of space they actually need. This shift could mean reducing the amount of office space that many companies lease.
“I think most companies want people to come back to the office most of the time,” Fine said. “Many companies are now making decisions about real estate, but it’s definitely not a panacea.”
Historically, every employee had a designated desk in the office space, but with the new model, companies could have more employees working on different schedules in the office and at home. He said the restructured office is likely to have more open seats, more space between desks, collaboration areas, and more circulation.
“The pandemic taught me that I don’t have to line up 6-7 people per 1,000 square feet … I work from elbow to elbow,” Fine said. “And that’s a good thing.”
Conversely, the companies that succeeded during the pandemic (such as e-commerce and streaming services) are actually expanding and will offset some of the shrinking of other companies, Fine said.
In the first quarter of 2020, Long Beach saw a positive absorption of over 70,500 sq ft, or the amount of office space rented, but in the first quarter of this year, the market was 127,607 sq ft. Experienced negative absorption. Report. Leasing activity also fell 10,803 square feet year-on-year to 59,530.
Overall recruitment rents in the office market have also fallen, according to Kushman’s report. The sharpest decline was in the suburban market, which fell 9 cents to $ 2.52 per square foot in the first quarter compared to the same period last year. In the downtown market, overall asking rents fell by 3 cents to $ 2.54 per square foot.
All in all, Mr Fine said the market was “stronger than expected.” Later this year, he said the market should recover as more children return to school and more people are vaccinated. Employees have already returned to the office, but Fine said the majority of people are not expected to return until the third or fourth quarter.
According to Lee & Associates Commercial Real Estate Services principals Noel Aguirre and Sean Lieppman, the retail market is stalled with a peasant eviction moratorium and financial support programs that support many businesses. With the support of the city, state, and federal government, vacancies in the city’s retail market have not yet been hit hard.
According to CoStar data, suburban retail vacancy rates are 5.5% as of the first quarter, compared to past 4% vacancy rates. On the other hand, the vacancy rate in downtown is 5.4%, but the vacancy rate in the past is 5.1%. However, the eviction moratorium will end at the end of June.
“The full extent of our impact on the local market, the impact on pandemic vacancies, will not be known until the end of the moratorium,” said Lieppman.
Many tenants pay 25% of their monthly rent, but will eventually pay the full amount, Lieppman added. Depending on the agreement with the landlord, when the moratorium expires, many businesses may be forced to close or look for new space.
“It would be interesting to see how it works,” Lieppman said.
The restaurant has been hit particularly hard by the pandemic, with multiple large spaces closing the doors. Also, several large restaurant spaces on the market before the pandemic are still open.
“The challenge is to decide whether to find another similar type of restaurant to backfill or move to another use, such as healthcare,” said Aguile, real estate owners filling up empty space. Said that he was spending time on. “… I often plan long-term strategies instead of temporary corrections.”
Many large spaces such as Sears, K Mart, Hood 4less, Ralphs, etc. will be on the market recently or soon. Lieppman pointed out that backfilling large spaces is becoming more and more difficult. This could allow real estate owners to split them into smaller storefronts or completely redevelop real estate to include first-floor retail homes, such as downtown, where housing density is acceptable.
Rent growth in both markets has been negative for the past 12 months, with suburban markets at -2.6% and downtown markets at -3.2%. Historically, rents have increased by more than 1% in each area. Suburban rents fell 1 cent to $ 2.30 compared to 2020, and downtown rents fell 2 cents to $ 2.62.
Vacancy did not change significantly, but absorption in both markets has declined significantly in the last 12 months. In the suburban market, there was a negative absorption of 147,000 square feet, but historically there was a negative absorption of just over 7,000 square feet. The downtown market saw 18,600 sq ft of negative absorption compared to nearly 8,400 sq ft of positive absorption.
Leases are shortening due to economic uncertainty caused by pandemics and changing political conditions, Lieppman said.
“I think two- or three-year leases are more popular than usual. It’s like a new five-year lease for a small store,” says Lieppman. “Everyone is just trying to understand the new rules of the game.”
The industrial market remains high in demand due to increased online shopping and port activity and remains the region’s least volatile real estate sector.
John Eddie, Executive Vice President of Coldwell Banker Commercial Blair Westmac, said: “In a sense, the pandemic has strengthened the industrial market.”
Internet shopping surged when families were at home and adults were working at home. Consumers spent $ 861,120 million online with US retailers last year, up 44% from 2019, according to data from media and research firm Digital Commerce 360. The increase in sales has increased demand for warehouses, distribution centers and other merchandise transfer businesses that use industrial space.
One of the concerns, according to Eddie, was the ability to pay rents for small industrial tenants, especially areas not related to port activity. However, he said the landlord and resident are working together to make up for the backrent.
According to Lee & Associates data, vacancy rates fell from 1.8% in the first quarter of last year to 1.7% in the same period this year. Year-over-year, average rent increased by 2 cents to $ 1.11 per square foot.
Millions of square feet of new Class A industrial space have been on the market in the last few years, but the high demand has filled most of that space. Some are even before they are completed. At Douglas Park, there are only two vacant buildings, but negotiations with potential tenants are underway, according to a spokesman for the Sales-Regis Group, which develops and manages the property.
“The presence of high-end industrial products in the town has undoubtedly had a positive impact on the city of Long Beach,” Eddie said, referring to the recent influx of aerospace companies.
Lee & Associates reported that first-quarter sales transactions were down about $ 60 million compared to the year-ago quarter. Average selling prices also decreased year-over-year from $ 196.93 per square foot in the first quarter of 2020 to $ 180 per square foot. However, average selling prices rose 12% from $ 166.31 per square foot in the fourth quarter of last year.
“It’s hard to say what will happen in the future-political movements, restrictions, it’s a bit uncertain,” Eddie said. “But in the near future, we … will continue to rise.”