M id A tlantic Real Estate Journal — Office & Industrial/Distribution Centers — May 21 - June 17, 2021 — 15A


O ffice & I ndustrial /D istribution C enters By Todd Monahan, Wolf Commercial Real Estate/CORFAC International Out-of-Sync Markets poised for a Strong Recovery


ideas off each other. Yet, the office market is truly in uncharted waters and it remains to be seen how severely demand will be im- pacted. Will downtown CBDs be more heavily impacted as employers seek less dense locations and those that don’t rely on mass transit? Will sub- urban markets see an increase in activity as home dwellers and employers seek less dense locations? Ripples in Hospitality Pre-pandemic, the hotel sec- tor was experiencing strong occupancy levels and average

daily rates that drove revenue per available room to some of the healthiest levels ever seen. Both business and leisure travel were booming in 2018 and 2019. Then the pandemic hit, and all occupancy and any revenue associated with it plummeted. Hilton Hotels has nearly a million rooms in over 6,200 properties across 118 countries. Hilton’s RevPAR tumbled 81% from the same period a year prior and swung net income of $260M to a loss of $430M. Several major hotels in New York City declared bankruptcy.

It may take several years for the hotel sector to rebound as business travel has been curtailed immensely. Leisure travel will most certainly come back, but many markets and specific hotels rely on business travel. The pandemic’s effects may be felt for a long time. Residential Impacts Residential markets, much like the industrial sector, are experiencing activity not seen since 2006 and 2007, just before the subprime mort- gage crises surfaced. Interest rates are near historic lows, continued on page 16A

he global pandemic caused fundamental changes in how we

provide office workers flexibil - ity never seen before. With the rise in Zoom and other new technologies, some employers saw no decrease in productivity and are now con- sidering incorporating more remote policies. Conversely, some CEOs have said that video meetings and remote work aren’t conducive to build- ing culture or training new or junior employees. Clearly there is a benefit to close social contact and spontaneous meet- ings. Collaboration and inno- vation thrive when we work closely together and bounce

live and how we work. It also showed how fragile our econo - my, supply chains and markets are. In dramatic fashion, the

Todd Monahan

pandemic impacted the major real estate markets, but did so variably. Typically a recession- ary period negatively impacts all real estate sectors. Today, however, each commercial real estate segment is being af- fected -- and responding -- very differently. Effects on Retail Before the pandemic, e- commerce was already driving strong demand for industrial real estate, more specifically warehouse distribution space. Local and institutional inves- tors were pouring money into the sector, driving up values and driving down cap rates. The focus on big-box and last- mile distribution has created scarcity in the sector never seen before. E-commerce was also im- pacting the retail market pre- pandemic. Online shopping increased as a growing number of consumers elected to order items from their phone or laptop rather than experience the inconvenience of driving to the store. Most retailers already had an e-commerce strategy, but the pandemic pushed that into overdrive as consumers had fewer choices to get necessities, except from the local grocery stores that were deemed essential. Convenience retail, local strip malls and many tradi- tional retail stores will remain important as many consumers still like to see, touch and try on items before purchasing. But the pandemic accelerated the practice of ordering every- day items online. As a result, many consumers experienced the convenience of ordering basic items online with next day delivery. For many, this will become the norm. Office Impacts The office market has been hit hard. The sector may expe- rience a contraction in demand, not fueled by a poor economy but rather by new workplace strategies that incorporate work-from-home models that

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