Driven by pandemic-fueled e-commerce sales, 2020 tenant expansion outpaced last year’s total after a fourth-quarter surge in demand by companies seeking additional warehouse and distribution space to improve supply-chain efficiencies.  There were a net 99.2 million SF of industrial space absorbed in Q4 – the strongest quarter on record – and 203.7 million SF absorbed for the year, a 27% increase over 2019’s net growth.  An array of evidence supports the consensus that the lockdown was an accelerant that gave several trends in commercial real estate a push.  Despite damage to the labor market, national and world economies, companies positioned for e-commerce have won a dramatically increased share of total sales. Consequently, skyrocketing online sales have intensified already-strong demand in key markets for big-box and last-mile distribution facilities.

Record-setting inbound cargo is straining U.S. ports, and officials nationwide are steaming ahead with expansion plans.  As the year ended, dozens of container ships were anchored off the Los Angeles-Long Beach port complex waiting weeks for berths and with more ships arriving daily. READ MORE >

Office tenants shed 21.1 million SF of space in the fourth quarter, pushing the total of negative absorption for 2020 to 76.1 million SF.  But there was reason for optimism going into 2021 as vaccine distribution was underway nationwide along with plans for additional federal relief and economic stimulus.  The question remains how quickly those idled during the pandemic return to work.  Office employment remains more than 1 million jobs off peak employment reached in the first quarter.

Many companies are re-evaluating their remote-working protocols and planning to reopen offices in the second half.  This will dramatically reduce volume of sublease space that has increased 70 million SF since the first lockdown. Second-hand space totals some 180 million SF, about 14.5% of all space available. San Francisco reported a spike in sublease listings from retail and hospitality-connected tech firms. Seattle, Austin, New York, Los Angeles, Dallas, Chicago, and Boston also showed increases in second-hand space.  In the last four quarters, markets with the most net absorption continue to be a familiar mix of tech hubs Seattle and San Jose and high-growth sunbelt metros Las Vegas, Atlanta, Orlando, Tampa, Dallas and Charlotte and Raleigh in North Carolina. READ MORE >

Deliveries of vaccines couldn’t come soon enough for the retail sector, which posted 29.6 million SF of negative net absorption in 2020 and lost an increasing share of consumer spending to e-commerce.  Until the holiday wave of Covid infections, consumer attitudes had modestly improved with gradual reopening of the economy and easing of social distancing restrictions. Increased activity was being seen from grocers, discounter retailers, pharmacies, home improvement stores and essential-oriented general merchandisers. Nevertheless, negative net absorption continues to mount as merchants and restaurants shutter their businesses amid unprecedented financial stress. Retailer bankruptcies continue to be concentrated throughout apparel and department store subtypes, but the profile of retailers experiencing distress has expanded to fitness centers, furniture stores, sporting goods, restaurants and even discounters.

The wave of bankruptcies is expected to continue. Tenants with essential-oriented offerings have weathered the storm and represent a modest source of positive demand but not enough to offset weakness in other tenant segments.  Vacancy has risen alongside swelling negative net absorption and occupancy is poised to erode further.  Even landlords with fully occupied buildings are struggling as many tenants are behind in rent payments.  Rent growth turned negative throughout the large coastal markets such as Boston, New York and Los Angeles.  Along with mounting store closures, bankruptcies and move-outs, rent growth is expected to turn negative over the next few years. READ MORE >