The pandemic has created new opportunities for the commercial real estate sector

ALBANY — The stock market may be in freefall and the housing market could lose some of its luster as mortgage rates rise as part of the Federal Reserve’s efforts to tame inflation and stave off a recession.

But when it comes to the commercial real estate market – minus the office space sector – there is no sign that things are slowing down.

In fact, as the COVID-19 pandemic has rapidly reshaped the way people work, live and play, the commercial real estate market has quickly adapted.

What’s hot? Warehouses, apartment complexes and medical practices.

What is not? Office space, although this trend may vary depending on the size and affordability of different metropolitan areas and the ability of companies to provide their employees with a “hybrid” environment that allows them to work from home or in the office .

Although the transition was difficult when the pandemic first forced workers to return home at the start of the pandemic in 2020, many workers have realized the benefits of working remotely and never want to return to work from home again. 9 to 5 in the office in favor of work-life balance.

“Obviously, office space has been a big topic, and it’s interesting to see how companies are responding,” said Jesse Tomczak, chief banking officer at Colonie-based Pioneer Bank, which is simply called Pioneer. these days. “I don’t think we know where the numbers will end up with office space. A lot of work is being done (in hybrid environments) so they’ll probably need a little less office space in the future .”

While demand for office space may be down around 10% as people spend less time in the office, other segments of the commercial real estate market are booming – even those that may have seemed simple and uninteresting in the past.

“The market for medical office space is really hot now,” Tomczak said.

We are, after all, still in the midst of a global pandemic that has pushed the healthcare industry to its limits, especially hospitals.

And with people forced to stay at home and cancel elective surgeries over the past two years, there has been a trend to “decentralize” hospitals, most of which are located in cities, and bring the patient care, Tomczak said.

And this has led to an increase in new medical office buildings, urgent care offices and dental practices. OrthoNY, the orthopedic medical practice, now has four urgent care centers in the capital region that specialize in seeing patients quickly without an appointment. In the past, these same patients may have chosen to go to a hospital emergency room. In the post-COVID era, an ER visit means hours of waiting and waiting without seeing a doctor and a higher chance of being exposed to COVID.

“You see a lot of medical office space being distributed,” Tomczak said. He also said warehouse space is in high demand as consumers have shifted almost entirely to online shopping during the pandemic, even buying their groceries online.

“The pandemic has forced them to learn new behaviors about how to shop,” Tomczak said.

But commercial real estate brokers aren’t abandoning the office space market just yet. According to them, the office space market is moving towards something new – which will provide new opportunities. And the industry isn’t giving up on it just yet as there are indications that workers are continuing to return to the office even now in 2022 and more are expected to follow.

“At first it felt like the traditional office environment had changed forever,” said Peter Struzzi, president of Pyramid Brokerage Co. in Latham. “Although we have significant office blocks to sublet, we are seeing a slow but steady return to the workplace. I’m not saying it will return to the way it was before, but that’s the trend.”

Things aren’t so hazy when it comes to storage space.

Struzzi said some time ago his office listed a 140,000 square foot warehouse in Johnstown for $3.50 a square foot for a so-called triple net lease where the tenant pays all expenses, including taxes. .

Today, that same building is rented at $5.50 per square foot, an increase of 60%. Newly constructed storage space costs $9.50 per square foot.

“The industrialist is mad,” Struzzi said.

But Struzzi says the thirst for warehousing space isn’t entirely tied to consumers’ decision to shop online post-pandemic. It is also a question of technology.

Amazon and other companies have dramatically improved their ability to get products to consumers faster than ever, requiring new custom-built facilities with robotics.

“I wouldn’t put it all on online shopping,” Struzzi said. “Automation makes older (warehouse) stock obsolete.”

These trends are also consistent with what national real estate experts are saying.

At a May legislative forum in Washington, D.C., the National Realtors Association’s top economist said the commercial real estate market should be strong for now, despite COVID headwinds and rising rates. of interest.

“Apart from the office sector, which is lagging as employers allow increased flexibility of remote working to retain and attract talent, commercial real estate continues to strengthen,” said Lawrence Yun, chief economist of the National Realtors Association. “The industrial sector is booming, retail is turning positive again, the hospitality industry is recovering, apartments are doing very well and rents are rising across all business sectors.”

The demand for office space really depends on the type of business you are in. Banks, for example, still require many face-to-face meetings with customers to sign loan documents and other verifications, and people still like to go to the bank branch.

And in many cases, companies need to spread out their employees more now due to COVID precautions, so they need as much space as ever while still being able to have their employees work from home when the need arises. feel. Many workers now see this flexibility as a major benefit.

“In some cases, we have reconfigured the work environment to support and improve employee health and safety, which has been and remains an organizational imperative,” said Susan Hollister, human resources director at Pioneer, which has 22 branches. “And, when the regional increase in COVID-19 cases made it necessary, we instituted hybrid schedules to further protect our employees.”

And there are other benefits that have arisen due to the pandemic and dramatic changes in workplace behavior and expectations.

“I haven’t had a tie in months, and I don’t miss it,” Pyramid’s Struzzi said.

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