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THE GARDEN ISLAND
Friday, April 09, 2021 Page 3
Rethinking commercial real estate Alex Veiga ASSOCIATED PRESS LOS ANGELES — The distribution of COVID-19 vaccines is fueling optimism that Americans will increasingly return to the ways they used to shop, travel and work before the pandemic. That would be a welcome change for companies that own office buildings and hotels, or those that lease space to restaurants, bars, department stores and other retailers. These have been the hardest-hit areas of commercial real estate over the past year as the pandemic forced many businesses to shut down temporarily or operate on a limited basis. But even as the U.S. economy appears set to roar back to life this year, as many economists now predict, demand trends for commercial real estate could take longer to recover as businesses reassess their post-pandemic needs. This means higher vacancy rates and declining rents this year, especially for retail and office property owners, said Thomas LaSalvia, senior economist with Moody’s Analytics. “We see such potential and plenty of anecdotes and early data of actual shifts in how we work and how we shop,” he said. “The structural changes that are going on still give us pause to say that we’ve entered a recovery in terms of office or retail.” So far this year, the commercial real estate market has seen some positive trends, as many businesses that had to shut down or operate on a limited basis are
Mortgage rates dip for first time since January ASSOCIATED PRESS McLEAN, Va. — Mortgage rates fell for the first time in more than two months as buyers continue to be stifled by high prices and limited supply. Mortgage buyer Freddie Mac reported Thursday that the benchmark 30-year loan rate dipped to 3.13% this week from 3.18% last week. At this time last year, the long-term rate was 3.33%. The rate for a 15-year loan, popular among those looking to refinance, fell to 2.42% from 2.45% last week. One year ago it was 2.77%. Mortgage rates have been historically low for years, but strong demand and low inventory have pushed prices higher. Last week the National Association of Realtors reported that its index of pending home sales tumbled 10.6% to 110.3 in February, its lowest level since May of 2020. Contract signings are now slightly behind where they were last year after eight straight months of yearover-year gains. Meanwhile, U.S. home prices rose at the fastest pace in seven years in January, according to the S&P CoreLogic Case-Shiller 20-city home price index. The pandemic has fueled demand for single-family homes as people look for more space. Economists expect home loan rates to remain low as the Federal Reserve says it intends to keep its main borrowing rate near zero until the economy recovers from the coronavirus pandemic. Also Thursday, the Labor Department reported that the number of Americans applying for unemployment benefits rose last week to 744,000.
taking out concessions offered by landlords to woo tenants, dropped 1.5%. Moody’s Analytics is projecting vacancy rates for retail properties will climb to 11% or 12% as businesses reconsider their space needs after last year, when the percentage of retail purchases made online nearly doubled to 20%. “We actually expect that to rise closer to 25% by 2025,” LaSalvia said. “This pandemic forced a lot of people to pull the bandage off in terms of being willing and able to shop online.” For office space, vacancies rose to a rate of 18.2% in the first quarter from 17%, while average effective rent fell 1.8%, according to Moody’s Analytics. Before the pandemic, office vacancies had been trending around 15% to 16% nationally. LaSalvia expects that to climb to 20% by 2022, then decline gradually to 17% by the end of the decade. JOHN RAOUX / ASSOCIATED PRESS Hotels have had it particularly rough. Occupancy rates sank a Signs advertise a business space for lease at a shopping plaza in Orlando, Fla. year ago after global leisure and being given the green light to open pace since 1984 and the strongest conferencing? business travel all but ground to a by governments amid a pullback among the world’s wealthiest The full impact of these halt. The monthly occupancy rate in new coronavirus cases and a countries. assessments may not be known had been running well above 60% ramped-up rollout of vaccines. Still, commercial real estate for a while, as commercial in 2019 and stood at 65.7% in In March, the national owners face uncertainty as tenants property leases tend to run February 2020. Two months later, unemployment rate fell from 6.2% reevaluate their needs. Will between five and 15 years. Still, it sunk to 20.6%, according to data to 6% and employers added businesses that rented office some of the economic fallout from from Moody’s Analytics. 916,000 jobs, the most since space and spent the last year with the pandemic is already visible in Occupancy improved to about August. That included 216,000 most or all of their employees national commercial real estate 45% last summer, before easing positions at restaurants, hotels working from home need as much industry data. again. It was 34.4% in January, and bars — the sector most space? Will retailers that shifted The vacancy rate for retail space down from 66% a year earlier. damaged by the pandemic. more of their operations online increased to 10.6% in the first Meanwhile, the average revenue And this week, the International during the pandemic cut back on three months of this year from per available room, or RevPAR, a Monetary Fund forecast that the key hotel industry metric, was storefronts? Will businesses 10.2% a year earlier, according to $30.27 in January, down 64% from U.S. economy will grow 6.4% this resume spending on travel after Moody’s Analytics. And average a year earlier. year. That would fastest annual having embraced video effective rent, what’s left after