February Economic Update

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For this month’s Economic Update, we’re addressing a slightly different topic than the usual happenings in the residential real estate world. A recent report by the federal government on the current state and future of commercial real estate is something worth noting and paying attention to.

There is a lot in the report but the highlights are this: commercial real estate could be in for a pretty significant one-two punch, most of which has been brought on by the pandemic. 

The Jab: As people started locking themselves in their homes, they started buying online at unprecedented levels. For example, in 2020 Amazon saw a 37% increase in sales compared to 2019. While this is really good for Amazon, it is really bad for the brick-and-mortar retailers across the country. Many of them have had to shut their doors, never to open again. This sector was already slowing with 9,500 stores closing their doors in 2019, which seemed big until you saw the 2020 numbers at as many as 25,000. If you happen to be scoring at home, that’s over a 263% increase. 

The Right Cross: The whole world just got a one-year experiment in working from home, and a lot of companies discovered they could reduce one of the biggest expenses on their balance sheet – rent. Some have even realized they could eliminate it altogether. Here are just a few of those names: Google, Uber, American Express, and Apple. Additionally, more than half of Americans want to continue to work remotely, and two-thirds of the companies may renew their current work from home policies as permanent. No matter how you slice the numbers, a LOT of companies are going to be reducing their need for office space – or at a minimum not needing to add more as they grow. 

Said simply: It is going to be a very bumpy ride in commercial real estate for a while. Now, if someone could just start a several billion-dollar fund to convert all that commercial real estate to residential real estate to ease the massive inventory shortage we have on that side of the equation, that would be amazing. If anyone reading this is starting that fund… call me, I’ve got some ideas. 


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