Rebuilding The Economy Through Commercial Real Estate
As efforts to end the pandemic continue, rebuilding the economy will be a long term battle. As businesses begin to reopen and people begin to get back to their jobs, the economy will begin to rebound from the strain the pandemic has placed on it. While residential real estate markets have fared well in the last year— speared by historically low interest rates— the commercial real estate market is also seeing a positive climb.
NAIOP Research Foundation Study
The annual NAIOP Research Foundation study, “Economic Impacts of Commercial Real Estate,” reports that commercial real estate development contributed $26.0 billion to the state economy, supporting 162,515 jobs, and generating 9.5 billion in wages. In addition to the number of employees these new spaces will house, the contributions to the local and state economy are unsurmountable. On the national level, construction’s percentage of total U.S. GDP rose from 19.5 percent in 2019 to 21 percent in 2020. This percentage is anticipated to increase over the next several years as state and federal infrastructure projects get underway adding more jobs and generating more wages that lead to economic recovery.
The study also provides an in-depth explanation for the changes the commercial real estate market is experiencing, as well as the possible reasons behind the changes. The study asserts that much of the commercial construction growth can be primarily attributed to manufacturing and retail companies rethinking their spaces and focusing more on creating an experience for the customer than a strict sales space. In the luxury market, these redesigned retail spaces have become the norm as brands vie for the most cutting edge retail space to draw in a consumer who can more easily shop online. However, this is a trend we are seeing in middle tier retail businesses as well. Stores redesign their spaces to appeal more to the consumer, giving them alternate reasons to come into the store.
How Offices Are Being Impacted
For office buildings, the growth hasn’t been as direct. When workers began working from home, many new office construction projects were cancelled. However, as people begin to trickle back into the office, businesses are rethinking their footprint. Some may opt to move to more affordable areas, others may downsize their spaces, and some will experience growth on the back of the pandemic that will drive them to seek larger spaces. Businesses that intend to remain in their space will ultimately begin to better utilize the space, with renovations and alterations. All of these changes though, the NAIOP report asserts, are beneficial to the commercial real estate market.
The most substantial impact coming to the industry is going to come from the state and federal levels. COVID relief packages include funds earmarked specifically for public infrastructure. This will have a positive effect on the commercial real estate market as new buildings and public spaces are created. On the federal level, there will also be an increase in infrastructure that will improve city and suburban environments bringing more businesses and people into the areas. All of these projects will have a significant impact on rebuilding the local economy in the coming years.
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Rebuilding the economy will take time. Be prepared for the slow process by knowing what to expect with the commercial market. Call Joe today at (909) 772-1212 to learn more.
How Covid-19 is Affecting Residential Migration
The Covid-19 pandemic has had a massive effect on both the national economy and local economies, like within California’s Inland Empire. Many individuals suddenly found themselves without a job. More people are working from home than ever before. Businesses are downsizing, changing location, or shutting down entirely. The job market has changed drastically, urging many to make adjustments to their careers. Part of that adjustment, in many cases, means migrating to new cities. In The Inland Empire, commercial and residential real estate markets have both seen tremendous growth spurred by the number of well-qualified candidates moving into the area.
What Reports Are Showing
The annual CBRE report provides evidence to this growth asserting that a more significant number of people moved in the last year, than in previous years. California has seen an exodus of residents into nearby states. However, while California overall experienced a decrease in residents in 2020, the Inland Empire saw an increase comparatively. Currently, businesses are now opening back up and workers are returning to their places of employment, indicating that commercial real estate market trends will see an uptick as well.
Based on the CBRE report, The Inland Empire ranked number five in the state for the number of move-ins versus move-outs. This means that more people moved into the Inland Empire in 2020 than moved out. The report suggests that this is a result of the pandemic, coupled with the normal fluctuation of residents. Specifically, 2020 saw a 10 percent increase in young, highly educated individuals moving out of the city into suburban and rural areas. Los Angeles saw a significant decrease in residents, suggesting more city-dwellers have moved into the Inland Empire and other surrounding areas. This has had a positive impact on the residential market in the Inland Empire and has also been beneficial for businesses in the area who are able to attract the incoming talent.
Moves during the second and third quarters— the most turbulent annual quarters— were higher than usual. Address changes slowed modestly during the fourth quarter, suggesting that the moves were already planned and not a knee-jerk pandemic reaction. This type of activity indicates that the movement away from cities may continue into the following years. As more businesses move towards a remote-work model, more individuals are likely to migrate to affordable areas like The Inland Empire from surrounding major cities such as Los Angeles.
What This All Means
With the upwards trend of movement into suburban areas, the following years almost guarantee new opportunities for growth. Riverside alone will see an increase in business as college students start to return to school. As a college town, the local Riverside economy relies heavily on students. Returning students combined with new residents equals the perfect time for adjustments to be made within the commercial real estate industry.
These trends and data are beneficial for the economy of the Inland Empire area. Business owners will benefit from the influx of residents moving to The I.E. Now is the time for building owners to take advantage of market shifts and consider selling or leasing their properties to new businesses or businesses looking to downsize. Some companies may even be looking to move into larger buildings in preparation for pandemic-related restrictions lifting. While the costs of commercial properties remain higher than usual, negotiations are more flexible than ever.
Ultimately, time will show what the lasting results of the pandemic will be. In the meantime, the Inland Empire is benefiting from the new, young, and well-educated residents moving into the area in both the business and residential sectors.
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Now is the time to take advantage of commercial market trends. Want to know what options are available? Call Joe today at (909) 772-1212.