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Industrial sector is rare commercial real estate bright spot

The industrial sector appears to be the only asset class in commercial real estate poised to weather a devastating downturn caused by the coronavirus, said Rebel Cole, Ph.D., a finance professor in Florida Atlantic University’s College of Business.

Rebel Cole, Ph.D., a finance professor in Florida Atlantic University’s College of Business

Demand for distribution centers and other warehouses already was at a record high in many markets nationwide even before the coronavirus established a foothold in the United States. E-commerce companies need the space to fulfill orders from consumers who increasingly shop online – a trend that almost certainly will continue in the months ahead as people look to limit exposure to the virus.

“It’s just so much more convenient to have it delivered to your front door,” Cole said. “Once businesses open back up, I see a pretty strong recovery for industrial properties.”

But the effects on office, retail, hospitality and multifamily already have started and likely will worsen, according to Cole.

Even after the economy starts to reopen, travel will be limited until there’s a treatment or vaccine, meaning less business for hotels and resorts, Cole said.

He added that apartment developers marketing urban towers featuring shared spaces and microunits may find fewer takers as people seek more room in the suburbs.

Tens of millions of hotel and restaurant workers have been laid off, furloughed or had hours reduced. As a result, many business owners and apartment dwellers aren’t paying the rent, causing property owners to postpone their own mortgage payments.

Meanwhile, entrepreneurs and small business owners often rely on credit cards and personal savings to get by and could be forced to shutter for good, leading to large vacancies in the retail and office sectors, said Christopher Boudreaux, Ph.D., an associate professor in FAU’s College of Business. Brick-and-mortar retailers were struggling before the coronavirus, and now malls could see even smaller crowds as people avoid big public gatherings.

“The outlook for retail was negative before the pandemic but now is much worse,” Cole said. “Going forward, the coronavirus likely will change retail and office space requirements to accommodate social distancing, which would absorb a lot of newly available space.”

In the coming weeks, some offices will need to be reconfigured to put more space between workstations. But longer term, as employees demand more work-at-home concessions, businesses may need less square footage than they had before.

Just as millennials were influenced by the housing collapse more than a decade ago, “the coronavirus will be the defining event for the next generation,” Cole said.

 

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