Rebirth of the suburb? Downsizing, e-commerce spell change in commercial real estate | News
With the housing market benefiting from the momentum of the pandemic boom in the coming years, the commercial sector could also see the effects from 2020, especially as the changes in the way we work create new trends.
Brad Worster, a commercial real estate agent in Norman for 25 years, said he and his colleagues in his field had never seen a year like 2020.
“In the past year we have seen more disruption in commercial markets than anyone who is alive,” said Worster.
In an attempt to predict what the next 15 years could bring to the market, Worster said that the last year alone will be more affected by the climate than the last 15 or 25 years combined.
When the economy collapsed due to office closures and certain non-essential businesses, fewer people commuted or worked at all, causing a sharp drop in demand for commercial real estate.
“People were still hiring me to sell or rent their property, so I kept trying to find ways to make the sun essentially shine,” Worster said.
Worster said nothing could be done if all sectors of the industry came to a standstill, except for multi-family investments, which kept moving due to long transaction delays.
Office downsizingOne trend that Worster expects to continue is in single-story buildings instead of skyscrapers, which could prove beneficial to Norman.
He said companies are finding out they have more space than they need and that it’s often unnecessary to have two floors of a building downtown.
Worster notes an emerging strategy called “hub and spoke” where a company can keep part of its headquarters in downtown Oklahoma City but open a branch in a suburb like Norman.
In Norman, Worster said a company could get a comparable office for one-third to one-half the cost per square foot of space in downtown Oklahoma City.
“Even if they were the same size but had these satellite offices, a company could save 50% on their rental costs,” said Worster. “That could be one of the big things for Norman’s future, is the rebirth of the suburbs.”
Worster said a downsizing trend has emerged as companies seek to let their lease expire so they can move to a smaller room. Norman could benefit from this pattern in the years to come.
“Regular small office rentals should be pretty solid,” Worster said. “The office market here has the potential to actually grow, but that’s because we’re stealing it from Oklahoma City.”
Need e-commerce formsAccording to Statista, global e-commerce sales saw the largest annual increase ever, from $ 3.35 billion in 2019 to $ 4.28 billion in 2020.
While a more modest spike is projected to $ 4.89 billion in 2021, Worster said that larger port cities as well as smaller towns like Norman will need more warehouse and distribution space to handle that jump.
“We saw online sales grow 39% from Q1 2020 to Q1 2021,” said Worster. “I read that for every $ 900 online sales you need an additional square foot of warehouse space in the distribution warehouse for it to work.”
In the next 10 to 15 years, Worster anticipates an era in which large retailers will have to adapt. If shopping can be done through a store’s mobile app, there will be a faction that will never enter that store again.
Taking physical shoppers out of the equation will likely mean an increase in last-mile distribution centers in cities like Norman, Worster said.
With in-person tuition at the University of Oklahoma, Worster also foresees a recovery in college dormitories.
The pre-letting rates for the 2021-2022 school year look strong – according to RealPage, pre-letting rose 9.4% in March from the previous month and by 9.6% in April and May.
“I think the market will strengthen from a multi-family and investment perspective,” said Worster.
Worster said the direction and rate of growth of commercial real estate in Norman over the next 15 years will depend on entertainment, amenities and the quality of schools.
“You don’t want to live somewhere where you have to travel all the time,” said Worster. “If you’re in Pauls Valley, you might go to Norman for dinner Friday night, but Oklahoma City isn’t that far away. Oklahoma City’s tax dollars plummeted in 2020, but Norman has grown. “
The worst correlates between growth and consumer habits during the pandemic.
“They ordered to-go at local restaurants in town, shopped online, and stayed here instead of going to Oklahoma City,” said Worster. “If Norman can capture any of this, I think Norman has a bright future.”