Commercial real estate market in NY: Analysts see strength, uncertainty
Mortgage interest rates have risen in recent months, which can be a welcome sign for investors looking for a good return. However, the question of how this will affect actual lending rates to enable future developments and sales in the commercial real estate market is far from clear, according to Joseph Brennan.
“It depends. I mean, everyone rates the same index,” said Brennan, upstate New York senior vice president and market executive at S&T Bank.
This index is the US Treasury Department’s 10-year bond yield, which is widely used as a determinant in determining mortgage rates. And with several banks “flushed with deposits” thanks to the paycheck protection program, it seems possible that there are many reasons for optimism in 2021, though depending on the “risk of the project and the strength of the borrower”.
An unforeseen consequence of the COVID-19 pandemic that could hamper development in this sector is the rising cost of building materials.
“If you have a contractor as a client and costs go up, it hurts margins,” Brennan said, adding that the owner of a property under development “is also not interested in changing their costs.” In his opinion, developers now have the “ability to increase the price of building materials very sharply” – similar to the clauses of the transport and truck industry that take into account the rising gas price.
“People are rushed to come to broad conclusions and we don’t know which way it will go.”
Industrial real estate in “high demand”
Aside from the uncertainty about interest rates and the price of building materials, most experts agree that the pandemic has not affected all commercial properties equally. For example, in Deloitte’s Commercial Real Estate Outlook 2021, industrial real estate – which includes healthcare, data centers, and cell towers – was “positively disrupted” when other types of real estate did not. The report goes on to say that “Offices, hotels and retailers have felt the negative impact,” with 2020 prices showing the overall impact.
“For example, the US retail and office price indices were down 4.1% and 0.5% year over year in August. In contrast, the industrial property index rose 7.4% year over year.” In light of these findings, the report highlighted how “the pandemic has caused tectonic changes in the way people live, work and play, which has put certain real estate sectors under unique pressures”.
Christopher Giunta, property salesperson at Pyramid Brokerage, said these findings are true on a more local scale, noting that warehouse space is “in massive demand” as the office and retail sector are still “adjusting”.
“Just look at what Amazon is doing across the state. Even the retail model has changed a bit. If you look back on the past year, look at the different sectors. Office, retail has problems, but demand for warehouse space . ” Thanks to e-commerce and better delivery logistics that have “gone through the roof”, many people have not worked from home and have ordered the essentials online. “That was the biggest positive result from COVID,” said Giunta.
Giunta also said real estate near transportation hubs, including interstate highways, has seen an increase in value for investors with the aim of “shortening the supply chain.”
Another reason why industrial real estate is doing better? Giunta said there were fewer adjustment periods for these facilities than for retail and office spaces, both of which were badly hit by the COVID-19 pandemic, as customer-facing businesses had to work “within” [state and federal] Restrictions as much as possible. “
Another important factor in the durability of retail properties, Giunta said, was technology.
“From an official standpoint, technology has been of great help. It has opened many eyes that the work can continue because of technology. Retail has been doing pretty well. Igloo pods have been placed outside of restaurants,” said Giunta, adding, “Retailers got involved worked to make it work. “
Regarding office space, Giunta said it was more of a wait and see approach, although there has been some movement: “Some companies are still determining the best model for further development. What will that look like? What one.” Hybrid model works for your company? ”
Home Owners Associations support companies in lean times
Despite recent signs of U.S. Treasury Department returns and the promise of industrial real estate, commercial real estate companies still need other sources of income to support themselves. For Rochester-based SVN Realty Performance Advisors and the Realty Performance Group, according to Managing Director Cathy Barnum, this means that they not only handle the sale of real estate, but also manage them.
“It’s what keeps the lights on in the office. Property management is a stable income,” said Barnum. “Commercial transactions take so much longer than buying a home. It can take anywhere from six months to a year to get a deal closed.”
Like many other companies, Realty Performance Group was closed in early March due to the pandemic. Negotiations for several potential companies setting up on a Rochester property “have come to a complete standstill because no one knew what was going on,” said Barnum. Given that most property management-related business did not have to take place in the office, including contacting snowplowing services or landscapers, business was largely normal with no major disruptions, according to Barnum.
“Everyone took a break for a while,” she added, noting that now that vaccinations are happening, people are ready to come back. “
A major deal by the company last year was the acquisition of Buffalo-based Clover Management HOA Company in November. “We found another opportunity to do more business, so we did that,” said Barnum.
The deal nearly doubled the number of HOA homes the company manages from 4,000 to 8,200, according to a release from the company. In a statement, Realty Performance Group Owner and President Robert Marvin said, “We will provide enhanced services to all of our customers throughout the West New York area. Our new HOA customers in Buffalo will now receive the same property management services that we currently receive to offer.” Rochester and Syracuse customers. “
Barnum said she has seen greater demand for companies that have experience in real estate management, especially when it comes to risk management.
“A lot more happens when it comes to risk, there is someone who basically protects their risk,” she said, adding that the pandemic could increase demand. “I have a feeling this is going to happen more now than in previous years because of COVID. If we can’t help these commercial, retail and office spaces, they most likely won’t be able to pay for theirs.” Mortgages so banks can bring someone in to make it financially sound. “
Barnum also speculated that if remote working becomes the norm, it could have an impact on who owns the most important commercial properties in the area. Unlike larger markets, New York upstate real estate typically circulates between multiple local owners, including Buckingham Properties, although this could change with the addition of outside investors.
“I don’t know, we’ll see. Only time will tell,” added Barnum.
Brennan also hesitated to make firm predictions, citing the general view shortly after the September 11, 2001 attacks that most people would never feel comfortable working in an office building again.
“And shortly after that, at that time, that changed,” Brennan said. “It’s hard to say that in the future it will absolutely be this or that, but there will be significant changes in the way people live their lives.”