Office is the new retail – and why that's not a good thing
Office is the new retail, and that’s not meant as a good thing.
Abe Bergman, president and co-founder of New York-based Eastern Union, provided an update on the types of commercial properties that are in demand – and those that are not. The big surprise in the mix is retail, he said.
“Interestingly enough, we’re seeing retail come around,” he said during a recent telephone interview with Mortgage Professional America. “It’s been a couple of years since retail was a dirty word, and today we’re seeing a lot of retail deals being done and being done well. Lenders are not averse to doing retail because now we’ve gone through the cycle, we’ve gone through the retail correction to a big degree based on what Amazon is doing and what online selling is going to do. People now have an idea of what works and what doesn’t work.”
Retail makes a comeback
He registered surprise at the comeback of retail: “Retail has, interestingly enough, become a very, very good product type. Industrial is very good still and multifamily,” he added.
Office? Not so much. “The most challenging area today is office space because there you really have to analyze on a building-by-building basis,” he said. “Is it a building that’s been affected by COVID? Has the neighborhood been affected long-term? Or is it more of a suburban type of office building that has bounced back and is fully occupied and has plenty of demand for the office space?”
Then, he lowers the boom: “Office today is the retail of 2016. It’s the one that’s gotten tough.” Yet even with attendant challenges of the day, it’s not all doom and gloom, Bergman said.
Attitudes toward office space changing
“Here’s the thing,” he began. “We saw the exact same thing happen to retail. If you look at office space completely on a macro level, you’re going to paint a doom and gloom picture. Let’s be honest – if you’re office building is in downtown Manhattan or downtown Brooklyn or downtown LA, you may have a bad situation, you may have some very deep challenges because in general that market has a tremendous vacancy factor and I would venture to guess the rents have come down over there.”
Conversely, there are other types of offices: “On the flip side, if you look at office space on a more micro level and you take a look at what’s changed in the market, office space is still here to stay but now you have companies saying ‘we’re okay.’ “
Office users are reassessing space needs – a pronounced change in attitude rooted to the days of COVID-19’s peak. Bergman described the prevailing attitude now: “‘Instead of having one office in midtown Manhattan with 150,000 square feet of space, we’re OK with having four spaces. We’ll take in Fairfield, Conn., and we’ll take 15,000 to 20,000 square feet of space in Long Island and another 15,000 to 20,000 square feet of space in New Jersey because that’s where our people live, that’s where our executives live. Instead of everybody coming to that one office, maybe overall we’ll need a little less office space because some people are still working remotely.’”
He speaks from personal experience
He used his personal experience as an example of the metamorphosed landscape: “I grew up in Linwood, Brooklyn – I’ve been living there for 47 years. You used to not have any office space there. In the last couple of years, a bunch of these buildings were built and they’re doing very, very well.”
His personal investment practices outside of Eastern Union illustrate preference to see things at a macro level, he suggested. “Outside of my regular business, I’m involved in an office building development in Miami Beach. So obviously I don’t think at the micro level it’s doom and gloom. I’m putting my money where my mouth is actually.”
He sees stabilization ahead: “I think that’s what’s going to be the end of the story. People will figure it out – what works and what doesn’t work. And things will eventually stabilize.”
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