During this summer it was hard to pinpoint the effect that Covid-19 had on the retail market within San Jose, CA. But if we were looking for a sign, we finally got our answer. Health officials in the Bay Area renewed their stay at home order which would essentially hurt the retail businesses once again. Any retail businesses that were clambering to recover from the first shut down, are now ultimately in a worse off position than before. On top of that, the health order calls for retail locations to operate at 20% capacity; for some that is a hard ask!
We are starting to see the following trends:
Vacancy rates are increasing -by about 4%
Leasing activity is declining - by about 50% - 60%
Rent growth is stagnating - by about 1%
Construction is declining -by about 50%-60%
Sales activity is down - by about 40% - 50%
Higher availability rates of leases -by about 1% - 12%
Higher availability rates of subleases - by about 1% - 5%
Properties are taking much longer to lease/sell - by about 20% longer
For example, lets take a look at rents within San Jose. Since Covid-19, rents have fallen about 1%. Despite the downturn in rents, San Jose being in the top 5 most expensive areas to lease in the entire country.
There's been significant changes in the retail industry within San Jose. The announcements of big box retailers calling it quits has started to create a dent in the leasing arena. Not only that, many sectors of the retail market are being hit the hardest such as food/beverage, fitness and entertainment.
Personally, I'm receiving phone calls of past clients who want to explore their options when it comes to an exit strategy.
Given the change in how submarkets operate their business, it's really put a dampener on new businesses trying to strut their stuff for the first time.
We're seeing a 50%-70% decline in leasing activity since April
Commercial Real Estate Predictions in Retail:
Obviously, we'll continue to see an increase in the statistics mentioned earlier such as a higher amount of vacancy rates. However, I believe that rental rates will hold stronger than vacancy rates are holding. For instance, I have a couple spots on the market for $2.50 gross and while the market is dropping a nickel or so, this should bounce back a dime in the next year or two; following the C.P.I.
We'll still see properties harder to lease out. In addition, we may start to see sales of retail spots start to plateau a bit rather than dipping lower. Despite the cap rate being forecasted to drop slightly by about 0.1%-0.4%. While household income is continuing to increase we may see an increase in job growth within the next several months.
Lastly, while a vaccine is on the horizon, we don't think Covid-19 will smooth out the damage its done to the retail industry in San Jose. Thus, businesses may be "pickier" about the places they want to lease out / buy. Its clear that having an outdoor and online friendly business is key.
So what can we do in the meantime?
If you're a business person looking to start a business, don't hold your chips.
"Chaos breeds opportunity"
Find yourself someone who understands: Covid-19, business and future trends of the market. We can't for sure say when this will all end and our comfy normal will make its long awaited entrance. But for now and for the next year we can say safely to embrace the New Normal.
Doing something is better than doing nothing!
Not to mention touring properties can be a pain with the new protocols, so if you're an agent or landlord looking to get fantastic photos of your commercial real estate property, give us a call; we can help! It's a breeze to get a virtual tour going and we provide this service at the best value in the entire Bay Area.
Check out our other blog post going over how to start a virtual tour of your property. Give us call today to find out how we can help overcome the challenge of leasing out a commercial space during these times.