To say that 2020 was an interesting year would be an understatement. No matter what industry you were in, you felt the effects of government-mandated lockdowns, supply chain disruption, and changes in person-to-person interaction protocol. Without a doubt, the commercial real estate (CRE) industry was no exception with retail, hospitality, and office being the hardest hit. However, not all was doom and gloom as there were some bright spots in CRE lead by industrial, warehouse, and multi-family housing. Let us discuss these sectors and what we may expect going forward.
Brick-and-mortar retail had a wild ride in 2020. The initial impact of the lockdowns in March and April was devastating. Sales plummeted, supply chains were crippled, and all but “essential” travel was halted. Main street retailers, restauranteurs, and the hospitality industry were left wondering if they could hold on long enough to survive the pandemic. But, there was a light at the end of the tunnel and things began to improve for most of the country.
Restaurants became more and more multi-line in distribution of their menu with in-store, curbside, to-go, and delivery models. We are seeing a change in the way restaurants design their stores to accommodate. Even during the worst of the pandemic, we continued to see strong sales from the “essential” retail category such a grocery, pet supplies, and building supplies. Many retailers even managed to accomplish strong new store growth during 2020, lead mostly by quick-serve restaurants, auto supplies, and dollar stores. We see continued growth in the retail sector, especially in the North Alabama market as smaller “suburban” markets are now leading the way in retail growth over large metros.
Multifamily housing was one of the shining stars in CRE, especially in the Southeastern United States and our home market of Huntsville. You can’t drive far without seeing apartments being built in about every area of our market. Nationally the stability of this sector has largely been driven by tenant retention due to lack of people moving during the pandemic, but we think you will see an increase in vacancy rates in large metro areas as people begin to move to smaller markets and the suburbs. This is largely in part from the desire to reduce rent and no need to live close to the office due to working from home. We see continued growth in this sector in the smaller markets.
Office was certainly an interesting sector to watch during the pandemic. Even though most employees were under a “work from home” mandate for a majority of the year, vacancy rates remained relatively stable nationwide. The buildings may have been technically empty, the leases were still in place and the anticipation is that those employees will come back to work. That said, the pandemic did cause a decrease in leasing demand and net absorption in most markets. Once again, Huntsville has managed to weather the storm better than most. We did not see a decrease in demand for office space and expect that trend to continue into 2021.
Industrial and warehousing were without a doubt the hottest sectors in 2020. It was already in an upward trajectory when the year began but was quickly accelerated by the pandemic. With consumers forced to shop online, the storage and distribution needed to supply that demand drove a majority of the growth. However, retail and e-commerce demand weren’t the only drivers of this sector. Just look at what is going on in our market with automotive suppliers needing logistics facilities to support the Toyota/Mazda plant at Greenbrier. We see this trend continuing into 2021 as consumer retail distribution, both e-commerce and brick and mortar, continues to increase along with logistics facilities to support manufacturing.
Overall, we believe 2021 will be a positive year for commercial real estate and the economy as a whole. We are blessed to live and work in the Huntsville/Madison market and know the future is bright for all of us. Crunkleton Commercial Real Estate would like to thank all of its clients for your trust in us over the last year and we look forward to working with you as we head into 2021. Good luck and let us know how we can help.
Zac Buckley, VP of Leasing
Crunkleton Commercial Real Estate
Make sure you’re staying on top of the latest trends, newest developments, and hottest new stores in Huntsville by subscribing to our weekly blog updates!
CRUNKLETON COMMERCIAL REAL ESTATE GROUP
DEVELOPMENT | LEASING | BROKERAGE | PROPERTY MANAGEMENT | INVESTMENT CONSULTING