Three of Pima County’s commercial real estate leaders see great opportunities in the new year for companies looking to reassess their office or retail space needs while commercial property owners may want to consider selling as out-of-state buyers are lining up.
Melissa Lal, president of Larsen Baker, LLC, said she expects many changes in the local restaurant and retail industries as drive-thru eateries seem to be one of the big winners during the pandemic.
“The big story of 2021 will be drive-thrus... everyone wants a drive-thru these days. You’ll see freestanding buildings pop up in all the big-box parking lots,” Lal said. “Walmart, Lowe’s, Home Depot, you name it, they’re all looking to sell off prime parcels in their parking lots to the active drive-thru businesses like Raising Canes or Starbucks.”
Lal also predicts rent for new construction to increase as a result of logistic impacts and supply chain issues brought on by COVID-19 and increased demand for new homes throughout the nation. She also said to expect favorite mall retail staples like Sephora, Foot Locker and Old Navy to begin expanding into stand-alone buildings as traditional shopping center formats decline. Lal noted that prime-located retail real estate will become more valuable across Pima County as older and not-so-well located retail space will suffer as a result.
“The best corners in Tucson right now are Oracle and Ina, Irvington and I-19, Skyline and Campbell, Swan and Sunrise, Cortaro and I-10, and Broadway and Craycroft,” Lal said. “We can only expect these corners to continue to get stronger in 2021.”
To commercial property owners, Lal recommends considering selling due to historically low-interest rates, potential political changes and an influx of California buyers.
“My advice to any commercial property owner would be that selling now may be advantageous,” Lal said. “Interest rates are crazy low and a new political administration may make changes that could negatively affect property values, like getting rid of the 1031 Exchange.”
A 1031 Exchange allows a seller to avoid paying capital gains when selling an investment property and reinvesting the proceeds into similar properties of equal or greater value.
Cushman & Wakefield | PICOR CEO Barbi Reuter said it shouldn’t be a surprise office space is dying out during the pandemic. She saw the writing on the wall long before COVID-19 hit U.S. shores, she said. But Reuter does think many companies will continue to adapt to the situation and thrive as new innovation presents itself in adverse times.
“The demise of the office was predicted in the ’80s when ‘hoteling’ hit the scene and retail Armageddon was forecasted by e-commerce. Instead of extinction, new shapes take form,” Reuter said. “Warehouse and distribution demand is increasing. Starbucks is launching drive-thru only concepts and old structures are repurposed and reimagined.”
The CEO said she’s also seeing more out-of-state investors coming to the Old Pueblo as the price of real estate in larger markets like Los Angeles, Seattle and Denver are rising at such a rate it’s creating a market bubble. Another factor is interest rates are currently favorable for investment, she said.
“It’s a fairly balanced market between supply and demand, with a few exceptions and interest rates are favorable for investment. Competition is fierce for multifamily investment property and value-add opportunities,” Reuter said. “Tucson lacks sufficient built inventory to attract many large employers who would use industrial warehouses or manufacturing space and don’t have time to build ground up.”
Long Realty’s designated broker Cathy Erchull said the pandemic has created many opportunities in commercial real estate. Like Reuter, she also doesn’t predict a bright future for large office space considering numerous employers are noticing productivity hasn’t dropped as staff works from home these days. But that doesn’t mean those buildings are slated for demolition just yet. Erchull said she believes yesterday’s office space could be converted into tomorrow’s new entrepreneurial concept.
“There is commercial space available now that has not been available in the past. This means there are opportunities to acquire property that can be ‘repurposed’ to meet the needs of those businesses that do survive,” Erchull said. “For small business owners, the opportunity to obtain SBA loans at low rates coupled with other possible incentives is an opportunity that has not been available in the recent past.”
Erchull said the retail market is constricting and corporations will inevitably fare better than mom-and-pop stores with less access to capital. However, she said larger companies tend to favor newer buildings or construct themselves, even as the cost of building materials continue to rise in 2021.
But Erchull is seeing different players like charter schools and medical/recreational marijuana dispensaries filling the void and snatching up many of those vacant properties while lease terms are in their favor.
“Some businesses have thrived during the past year, such as charter schools that are looking for commercial land where they can expand,” Erchull said. “The legalization of marijuana has also created a demand for land with industrial zoning that allows for this activity.”