By: Adam Horowitz, Principal
There’s been a lot of change recently and commercial real estate has not been kept out of the fray. Sure, there are some obvious losers (retail and hospitality) and winners (distribution and data centers) that we can see a mile away, but what about the ones harder to find. Here are 3 less obvious sectors:
Office – Not all jobs can be done remotely, and many firms will still favor the social and collaborative benefits which are fostered through in-person working relationships.
Manufacturing – Supply chains could be re-focused domestically, as the outbreak caused global disruptions. The thought is that the industry would be better equipped to handle a similar pandemic in the future if more operations were located in the U.S.
Healthcare – This sector is expected to grow 10% to 16% annually over the next decade as the entire local, county, state, and national healthcare facilities infrastructure and platform are reshaped, integrated and expanded as society mends and strengths as a result of a pandemic like the world has never seen.
Commercial real estate is a slow moving animal, the Manatee of the real estate market some might say. The pandemic has pushed the envelope of how fast CRE markets can shift creating some havoc in certain sectors and opportunities in others.
Short term there will be a quick reaction to run away from office creating plenty of distressed opportunities in this sector, with some assets bouncing back fairly quickly. I don’t expect significant new development without strong pre-leasing from credit tenants nor do I think 50% of the workforce will be working from home in the next year or two. The lack of new supply in the coming years will provide some good deals to get in when the sector is in panic mode.
Industrial in general has been one of the hottest sectors in the commercial real estate business for some time now, but mostly on the distribution and energy fronts. What might be less apparent is what’s happening in the manufacturing space. There will be a small but significant increase in manufacturing as companies concerned about supply chains and their ability to weather future global issues decide to keep more of the work stateside.
Putting aside the challenges with Skilled Nursing at this time, the rest of the Healthcare sector ranging from low acuity products like Independent Living and Assisted Living, to higher acuity such as Memory Care and Hospice will continue to grow. Ancillary property types including Medical Office Buildings and Biotech will follow suit as well. Most of these assets are operation intensive endeavors and therefore have high barriers to entry.
There are sunny times ahead if you can get into the right sector, at the right time. Some sectors will continue to thrive. There will be some new hot property types to consider and also lots of distressed assets coming down the pike if you can gain access to them and have the capital to quickly close.
We are speaking with the markets daily and can tell you that capital is available for both assets that are doing well during this downturn and opportunistic deals in more challenging sectors. The real opportunity will come as deals fall apart for weaker sponsors allowing stronger ones to come in with cash or great capital relationships to pick up the pieces at a discount.
To learn more about these trends and how they might affect your business, or if you have questions regarding a commercial property, reach out to us and we will evaluate your project.