The future of commercial real estate

[Luka Milicevic]

Just curious what everyone thinks about the future of commercial real estate space. 

More retail going online only now. 

Large companies are saving money on office space by having employees work from home.

Even doctors are now doing virtual visits. 

I know some industries will be mostly immune to the internet as they will always needs a physical location such as a car repair shop for example. I'm just thinking if more and more places start taking their business online the need for physical locations will decrease. I think this will be especially true for the next generation.

Just my thoughts, I also own zero commercial space so have no idea what it looks like right now and what the trend has been. Would like to hear from the commercial folks on here what they think. 

[Joel Owens]

Luka,

That is a typical thought from those not experts in the retail space.

Economists are predicting online to tap out at 20% of all retail sales and most of that is clothing and knick knack type orders.

The U.S. does have some of the highest retail inventory in the world on a per sq ft basis. What you will typically find is that cold belt states are more heavily overbuilt versus demand whereas many warm belt states are expanding so if one space goes dark under a 20k sq ft box then many tenants ready to jump inline and expand in that area.

No retail apocalypse here. Neighborhood retail under 20k sq ft is doing incredible. I practically have to beg owners to try and sell as they want to keep almost forever. I have been busier than ever transacting. Tons of buyers want retail STNL and MTNL because it is very passive compared to other asset classes such as SFR, and multifamily for yield and returns.

It does take a lot of capital to play in this space for quality. All of my clients are pretty much millionaires to multi-millionaires.

The larger box sizes of 60k to100k sq ft if in a good location will easily get re-adapted with a new tenant or mixed use. It's the stuff like K-mart anchor in tiny towns that goes out is very hard to repurpose. The box shells are outdated for what tenants want today. So in those small towns you might get only 3 to 4 a foot for rent from self storage, church facility, flea market,etc. If the roof is gone that alone can be many hundreds of thousands of dollars to fix and then a/c units etc. The repairs are almost more expensive than scraping the building and starting over except the small towns where it does not make economical sense to do so.