Look at Where We Are: Office & Industrial Outlook Six Months into the Pandemic

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Part 1: Office Outlook Six Months into the Pandemic

As reopenings have stalled across the United States, and some states have reversed their reopening plans altogether, the million-dollar questions remains, when will things go back to normal?

While no one can have an exact answer for that, important trends are developing in the office sector. According to CoStar Advisory Services, office activity began to rebound in June and is now at 70% of what is considered normal based on 2016-2019 National averages. Suburban office markets are faring better than city office markets, and sublease availability in most markets is on the rise. It is likely that we will see sublease availabilities continue to trend upward for the next few quarters.

On the local level, interest is picking up in the Chicagoland area.

“We are seeing more activity with tenants who occupy less than 10,000 square feet. Another observation is that employees who work for smaller businesses are going into the office on a regular basis, while larger tenants have their employees continuing to work mostly from home.” – Ryan Freed, Vice President of Office Services at Cawley Commercial Real Estate

Analyzing a combination of work from home surveys from Gensler, KPMG, Iometrics/Global Workplace Analytics, PwC and Hired.com, it was discovered that an average of 55% of employees would prefer to see a partially remote work schedule in the future.

It is possible that the way we work in offices will be forever altered, but the demand for physical office space will prevail.

Part 2: Industrial Outlook Six Months into the Pandemic

As we’ve all heard by now, industrial real estate is faring very well in comparison to other product types. A key performance indicator according to CoStar Advisory Services, is that availabilities for existing industrial space remain historically low, even in Q2.

Major trends in E-commerce are driving industrial absorption rates, as E-commerce facilities have taken close to 40 million square feet of space since the beginning of 2020. It’s no secret that Amazon has continued to be a major player in E-Commerce and distribution, and they are finding an advantage as FedEx and UPS raise their shipping rates to major shippers. They are increasing their distribution network by 50% this year, adding an additional 60 million square feet of fulfillment space to their portfolio.

Another trend worth watching is online grocery shopping. In August of 2019, 13% of US Households used online grocery pickup or delivery services. By June of 2020 that increased to 35% of households. Consumers are adjusting to the convenience and ease of online grocery shopping and it is quite possible this trend will simply become a time saving habit. This leads to another opportunity zone in Industrial product types, as there has been a shortage of properties with cold storage since 2009 according to CoStar Advisory Services.

Consumers have been abruptly forced to change their way of life, and it will be interesting to see in the months and years to follow if we continue to enjoy the instant gratification of online shopping.

WRITTEN BY: Robyn Lynn, Cawley Commercial Real Estate Research Analyst
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