The pandemic is rocking commercial real estate like no other economic cycle we've ever seen, and the final shaking is far from over. While the debate over the nature of future office work – the model of working from home versus returning to the office – rages on, the other emerging trend is combining an urban exodus with a surge in the suburbs, according to Jay Olshonsky, CCIM, FRICS , SIOR, President and CEO of NAI Global.
Olshonsky cited part of a recent presentation by CoStar Managing Director Robert Calhoun, CFA, at NAI Global's annual (virtual) meeting, at which Calhoun stated that data supports the notion that people are leaving cities in favor of suburbs or secondary / tertiary locations , based on apartment rents. Rents are falling in urban areas and CBDs, while rents are rising in the suburbs. CoStar owns Apartments.com and, given the volatility in daily asking rents that Calhoun sees especially at the highest end of the market, he believes the economy is heading for a K-shaped recovery.
That doesn't mean cities are dying or dead, says Olshonsky.
"Let me first say that while New York City is temporarily closed, as are other major cities to varying degrees, we are not seeing the end of the major subway markets as the central business centers in US cities recover and eventually returning will be a version of business as usual, ”said Olshonsky.
“Meanwhile, however, our offices in smaller cities and suburbs are reporting increased activity from nongovernmental investors and corporations who are either moving or at least looking to reduce their urban footprint for satellite offices nearby. To be fair, some of this activity was already on the move before the health crisis, but we firmly believe that some of the market movement we are seeing is being accelerated by the pandemic, ”he added.
For example, the largest office lease in Phoenix in the fourth quarter of last year – prior to the pandemic – was DoorDash, a San Francisco-based logistics and on-demand grocery delivery company, which is building itself into The Grand at Lincoln Property Company of 345,000 square meters has committed Papago Park Center. While business relocations to Arizona, Texas, and Florida aren't all that new, reports of investor and tenant interest from outside markets in NAI Global's offices in Knoxville, TN, Boise, ID, and San Antonio, TX and others are an emerging trend.
On the service side of the CRE equation, NAI Global is expanding in regional markets, partly due to the disruption of the pandemic. The company opened offices in Syracuse and Long Island, respectively, in August and again in September, and in both cases the leaders of those offices cited the desire and need to expand their business development efforts by connecting with a larger brokerage, property management and real estate company related service companies – especially since the outbreak of the pandemic.
"Opening an NAI Global office enhances our ability to connect sellers and buyers / landlords and tenants," said Tom Lischak, CCIM, broker / owner at NAI Bridgeway Commercial in Syracuse.
“Improved connectivity is imperative as the commercial real estate industry addresses the COVID-19 crisis. In a metropolitan region like Syracuse, a relatively low density offers us the decisive advantage that there is more space to spread out. As a result of COVID-19, more local businesses may be moving to the suburbs or businesses outside of the city opening satellite offices in Central New York, ”Lischak added.
Similarly, Leo Farrell, principal of NAI Long Island, said his firm has moved to the NAI Global platform, which is more widely connected nationally and globally and still highly effective at the local level. That combination allows NAI Long Island to become more competitive and improve its ability to compete for new business as well as talented sellers and brokers, Farrell said.
“To compete effectively and win business and recruit talented professionals, it is important to become part of a strong commercial real estate platform like NAI Global. We were also interested in NAI because of the high quality of the other offices, which mainly focus on similar businesses to our company, ”added Farrell.