Large-scale crises have a way of pointing out inefficiencies. Within the restaurant industry, many full-service operators realized they could optimize their take-out and drive-through services. Meanwhile, the healthcare industry recognized a need for improving and expanding telehealth services and technologies.
Now, the real estate industry is facing a steady uptick in available commercial spaces, and many companies are struggling to resell them. Adaptive reuse and other practices could help.
Even before the pandemic, vacant retail spaces were becoming more prevalent. The convenience of online shopping was slowly winning over in-person shoppers. In 2019, e-retail sales surpassed $3.5 trillion worldwide. While e-commerce only accounts for about 14% of all retail sales in the U.S., analysts expect it to make up 22% of global retail sales by 2023.
As the popularity of e-commerce and remote work continues to increase, businesses will continue to shift to a virtual space and more brick and mortar stores will go up for sale. However, the odds of another business purchasing available retail space are slim as thousands of buildings sit empty.
An Innovative Solution
Conventional wisdom would argue it’d be much easier to tear these buildings down and start from scratch. But there are simply too many buildings to ignore, not to mention troubling shortages of labor and resources.
Major retail chains closed more than 12,000 stores in 2020 alone, leaving 159 million square feet of vacant space. Meanwhile, the construction industry is reeling from thousands of job losses, supply chain disruptions, material shortages, and higher prices.
Subsequently, the industry has had to take a more innovative approach. Now, it’s converting retail space into residential living, a move that may help solve the national house shortage and lack of affordable housing.
As the real estate sector adapts and grows over the coming months, the following trends will be worth keeping an eye on.
1. Lower Rents
As more vacant retail spaces hit the market, more inventory and low demand will likely cause rent prices to drop. Of course, lower rents will inevitably attract top brands that are looking to upgrade their locations.
However, property managers and investors will also see these lower prices as an opportunity to convert them into residential living spaces. Since the buildings are already there and the rent is cheap, they’ll likely be able to provide affordable housing and cheaper rent to tenants.
2. More Moves
The rental market faced a tumultuous past year. The federal government has taken several steps to implement moratoriums on evictions and provide funding for rent relief initiatives in the face of economic hardship. New York City, renowned for high demand and high prices, faced massive dips in moving rates and better deals on new leases than residents have seen in a long time.