There is no doubt that the coronavirus has taken a toll on business.
National real estate firms Newmark Knight Frank and JLL recently released their second quarter market reports for office and industrial real estate. The reports tell two stories -- the toll on the office market and the increasing opportunities in industrial.
----- OFFICE MARKET HIT BY COVID SLOWDOWN
Workplace shutdowns have taken a toll on the Inland Empire office market as noted by Newmark Knight Frank (NKF) in its second quarter of 2020 Office Market report.
San Bernardino County is allowing office-based businesses to resume pending approval of workplace reopening plans. Public health officials and business leaders are still recommending that employees work from home whenever possible, which has dampened plans for new or expanded offices.
NKF further states that the recovery for the office market depends on public sentiment, whether employers and employees feel comfortable returning to traditional office workplaces and if new cases of coronavirus increase, which would lead to more economic uncertainty.
A decrease in coronavirus patients is also necessary for the region’s healthcare providers to recover, as emergency treatment of COVID-19 patients displaces traditional client care, the industry’s main source of revenue.
As NKF notes, all of the sectors that drive office demand in the region have been impacted by varying degrees: healthcare, education, government agencies, and real estate. The region’s role as a logistics hub does offer some resilience for the industrial sector, which will help support the economy during a period that has officially become a recession.
----- BIG BOX DEMAND KEEPS THE REGION'S INDUSTRIAL MARKET GOING
According to JLL, the Inland Empire posted its 14th consecutive quarter of positive industrial absorption in the second quarter, as other major West Coast markets witnessed negative absorption due to a slowing economy. Absorption is the way commercial real estate investors gauge tenant demand and is measured in square footage.
With physical retail severely disrupted by coronavirus guidelines, there has been a sharp pivot in consumer behavior in favor of shopping online, especially over the past three months. This has left major e-commerce dependent companies searching for class A industrial buildings to manage the increased demand on their supply chains to better meet customer demand.
Construction activity remains elevated across the Inland Empire. Developers appear confident that industrial product will still be very much in demand despite a slowing economy, as e-commerce and online shopping have accelerated and are heavily dependent on having product in warehouses in close proximity to the millions of consumers throughout Southern California.
Looking forward, a significant test of big box demand in the Inland Empire is ahead, as more than four million square feet of product is expected to deliver in the third quarter. Assuming this product leases rapidly, JLL expects to see developers ramp up their activity in short order.