Ecommerce is Still on the Rise

A recent article about retail sales in the New York Times indicated that, while online retail--especially Amazon--had done very well during the pandemic, it still only amounted to about a quarter of retail sales.  That has some interesting implications for commercial real estate in Connecticut.

Given our location between Boston and NYC, and our high average income within the State, it stands to reason that, if ecommerce has not reached its peak yet, our warehouses, flex spaces, and raw land should do well in the future.  Distribution is the key to timely deliveries, and the ability to get something within a couple of days is a key factor in deciding whether or not to buy it online.  Whether goods are traveling further up into New England, or being delivered to homes around us, there will need to be warehousing available near our highways, railroads, and airports.  

Although our roads and bridges have been a challenge for trucks and overland traffic, Governor Lamont's call for a stronger focus on infrastructure, combined with President Biden's emphasis on the same, seem to point to a brighter future for distribution in and through Connecticut.  Smart buyers will begin to develop properties that have been languishing, and take advantage of changes coming down the pike (pun intended!).  Even if there is only a small continued shift toward home delivery, the amounts in question are enormous. Those developments should get filled, and provide income for the owners well into the next economic cycle.  

Got Warehouses?

The Town of Trumbull just announced a big warehouse deal by Amazon, who is opening a facility in North Haven also.  Given our proximity to rail, water, NYC, and Boston, we are in demand as a region in an economy of delivery.  Where will the supply come from?  Since not much has been built, and since there is some oversupply in other types of flex space, what was built as office may now become warehouse space.  While not providing the same number of jobs--which may be why Connecticut's 0.2% job growth is well below that of other states nationally and in New England-- such use does bring economic growth to our region.  There's also a spillover effect into transportation and other ancillary sectors.  Beggars can't be choosers.  We have real estate, and distributors have needs.

So, if you have land on which to build storage space, or space that can be converted, this is the time to put it on the market.  There are takers out there.

Too Early to Plan Around the Election?

I've heard a lot of discussion lately about planning real estate decisions vs. a vs. the next presidential election.  While we all realize that speculation is often just that, it is true that people do try their best to suss out what they think will happen to the economy, and therefore to real estate, if one or another person becomes President.  Obviously, many thought that Trump, as a real estate developer, would make choices that would be good for real estate investment on every level.  While that has not been universally true, it does seem true that, even in Connecticut, where 47% of those polled recently said that they were thinking about leaving the State within the next five years, there is a feeling of being better off than four years ago.  Is that because we are four years further from the last recession, or because interest rates and unemployment are low? Or is the scary stock market leading to moving money to "safer" places?  It doesn't really matter.  Real estate seems to be in favor as an investment again.

I've written about the opportunities buyers are finding along the Shoreline, now that hurricane fears seem more distant, and summer family gathering places more important.  I've also talked about the potential for real estate investment, especially in warehouses and flex spaces, based on location, and the type of needs that follow residential apartment expansion.  All of those things are true.  It does seem to me that our market in general is somewhat better than in other places, mostly due to the lack of a run up causing a subsequent downturn.  Whatever the cause, we are behind the curve, as we have been for a long time, and for now that is a good thing.

Should you wait for November of 2020?  It's a long way away.  Weigh your personal life goals against the choices, and make a plan.  Personally, I think there are too many unknowns, and the knowns tend to favor real estate investment now.

New Haven Industrial Real Estate--No Supply, No Demand

Perhaps we have discovered a new dynamic in the real estate market panoply--no supply and no demand.  Or, they are more likely related in a pretty simple way.  Weak demand over the past number of years for industrial property in Connecticut has led to a lack of new construction in this sector.  Many companies have left for warmer (weather-wise and tax-wise) climates, leaving a new supply of older buildings in their wake.  Fewer companies than in other places are expanding into more industrial space, so there isn't much demand to take up the supply that exists.  Therefore, rates are low, even though people looking can't find what they want and need.

That sounds awful, but it represents an opportunity.  Buildings can be converted, or constructed, and profitably, since there are buyers and tenants out there that cannot find what they want.  Sellers and landlords can continue to accept low rates of return, or they can repurpose those buildings to different types of uses (residential or flex spaces).

There is little enough around so that what is here should move, and, arguably, prices should be rising.  In order to make that happen, new players may have to enter the arena, and up everyone's game.  Let's hope for all our sakes that this occurs.  In the meantime, we would advise potential sellers to be undeterred by low rental rates, since people are looking for what's not there, and anything new could be just the ticket for a thus far unsatisfied user.

End of Summer Hopefulness

Greater New Haven's Commercial and Industrial Realtors held their annual outing yesterday, and the mood was upbeat.  Although a lot in August seems to be on hold for Labor Day and the coming of fall, most people were busy, or had the prospect of being busy in the weeks to come. 

That doesn't mean that all the property is being snapped up, however.  Really attractive office space is still begging, in many cases, for tenants.  And New Haven's dependence on not-for-profit employers and institutions leaves us vulnerable to changes in State and national funding.  However, retail has made a comeback, and flex and warehouse space is tight in some places.  There is somewhat of a disconnect between what buyers want and what sellers have to offer, but hey--there are buyers now!

Supply vs. Demand

We've just finished reviewing all our commercial listings, and something really interesting has become clear.  The calls we get from buyers and tenants seem to be largely requests for small space and flex industrial space in increments of 5,000 to 10,000 square feet.  The listings we consider best, and which we feature as prime listing properties, are mostly office buildings and large industrial buildings.

This disconnect is a key factor in the relative health of the commercial real estate market all over the country. Buyers want investment properties that are often difficult to find--apartment buildings; fully tenanted office buildings; and shopping centers.  Sellers want to dispose of property or lease property that is meant for users, and is often available in amounts that are too small or too large for the needs expressed by tenants and buyers.  And therein lies the rub.

So how do we find owners who are ready to market investment and divisible property, when they are reading that the market isn't active?  And how do we attract buyers for the good listings that we currently have?  That's our challenge, and one that we are working on daily.

Just Like Steve Jobs

We've all read about Steve Jobs (and Bill Gates), starting companies in garages.  It's a classic way to start as an entrepreneur.  In this economy, there are lots of entrepreneurs, some because they've lost their jobs, some because there are always good, new ideas out there.  And, at some point, they outgrow the garage and look for space.

That may be why the type of space most in demand now is small industrial or flex space.  It appeals to entrepreneurs--it's affordable, easy to use in a variety of ways, and readily available.  So, if you own that kind of space, think about leasing it to the next Steve Jobs.  You could become famous!