Commercial real estate is booming and for a few different, but encouraging, reasons. Current demand for space is outpacing its availability. Just over the first quarter of 2019 vacancies across the US shrunk by 20 basis points.
This is causing two developments.
First, the current space available has higher value. Second, developers are recognizing the need to build more space (over 110 million square feet are currently under construction nationwide). This space won’t be available for some time, firming up the current value of available space. We, at Eidi Properties, embrace the wave of local, in-person shopping. It helps our communities thrive and cultivates the conditions for better commerce and social engagement.
Why is this the case? Online stores moving to brick and mortar isn’t merely creating an added convenience for shoppers, it is raising the value of commercial real estate space. Originally, online retailers were lowering the value of real estate due to the chilling effect it had on in-person shopping and the fear of merchants expanding their local presence. Now, online stores are returning to physical stores and that is increasing the demand for space and improving the confidence among store owners that local stores can thrive in the modern economy. This phenomenon is amplified by two major economic indicators: joblessness and wage increase.
The jobless numbers, 3.7 percent unemployment, is up even with over 227,000 jobs created in June. The uptick is due to more people entering the job market which is a positive because it shows economic confidence. Additionally, a 3.2 percent increase in earnings has strengthened purchasing power and therefore demand within the economy. These factors have improved consumer confidence and business ownership confidence. Under these conditions there is more willingness from entrepreneurs, big and small, to lease commercial real estate space. This growing demand is driving up the value of the leases and the resale values of the property.
It was originally feared that when online giants like Amazon began moving to physical locations, it would price out smaller businesses. Although the effect has bolstered real estate values, it has also increased the demand on a broader scale, allowing for smaller business to succeed alongside the giants. This is the rising tide lifts all ships effect and can be celebrated by all merchants, big and small.
