Business as UNusual

By Bill Gladstone, CCIM, SIOR

The face of the real estate market as we knew it in February (pre-pandemic) was much different than the look it has today. And it continues to change. The market is naturally dynamic but when you add to it the circumstances of a pandemic, you are bound to get a shift. And we did.

The land market not only continues to be “hot” from a multi-family perspective but from an industrial viewpoint as well. A well-placed source notes: “Industrial land is on fire!” With the restrictions we have due to the pandemic, he is right — it should be on fire since 40% of our nation’s population can be reached from Central Pennsylvania within 11 hours. This is why we see the 1M+ SF structures being built instead of smaller 500,000 to 800,000 SF warehouses. Our area is much more than a regional hub and our growth in warehousing will continue to be explosive.

The office buildings for sale market continues to do well. Many larger buildings are selling at low numbers due to heavy vacancies, especially in the B-space sector. This allows well-capitalized buyers to invest the necessary money into these buildings, bringing them up to today’s standards. That helps attract the tenants that are active in the market and value is added. But the number of available tenants has been seriously dampened by the pandemic as some companies are debating the work from home model as a possible “go forward” strategy.

Retail has its issues, too, as some retailers move forward while others have hit the pause button. Online ordering has begun to dig deeper into retail sales. “Retail, though, is gaining back some lost ground,” according to Adam Hagerman, a sales agent with Bennett Williams Commercial in York, PA. “Shutting down only had a temporary impact. It was painful for some more than others as the “trickle down” ended up affecting bars, restaurants, gyms, and nail and hair salons the most. Bookstores also got hit hard.” But Adam indicated that grocery, auto parts, dollar, and tire stores continued to do well and were not affected quite as much as others who are now rebuilding their sales.

Investments continue to do well, somewhat unabated compared to prepandemic. As long as the investment makes sense — a creditworthy tenant, a longer-term lease, little or no deferred maintenance, and a market rate — then in this area a 7-8% cap rate is achievable. But there is a short supply of this product. There are investments masquerading as a 7-8% cap rate, but once the underlying economics are exposed, it is obvious these will never sell at the prices the owner wants.

Perhaps there are some similarities to the pre-pandemic market, but much of our new landscape has been shaped by the unique circumstances we are all currently facing. And I am not sure any one of us can predict how the current real estate climate will reshape itself (if at all) in the next six to eight months.

We wish you the best in your efforts!