NORMAN — After most commercial real estate sectors experienced a decline in 2020, industry experts say they see the trend continuing, particularly in the office and retail sectors.
The effects of COVID-19 on commercial real estate are expected to be more noticeable in 2021, Forbes reports. According to Moody’s Analytics, the vacancy rate for office spaces will rise to 19.4% in 2021, surpassing the previous record of 17.6% from 2010 and eventually holding steady in 2022.
Dana Hare, president and principal broker with DMG Real Estate, said she is seeing no activity on her listings on the leasing side. She said sales are also down, but that side seems to be “holding its own.”
“For a while we were still seeing some active sales happening,” Hare said. “I don’t know if it’s just the lack of product right now, but I am not seeing a lot of sales right now.”
Hare said the pandemic shift to working from home is partially to blame for the downward trend in the leasing market.
She is seeing companies like Boeing taking note of overhead and allowing employees to work from home. Boeing CEO Dave Calhoun announced in a conference call earlier this year that the company lost a record $11.9 billion dollars in 2020.
“My oldest daughter works for Boeing, and she’s been working from home for almost a year as a project manager,” Hare said. “They’re losing money right now and considering if they should start looking at a business model that allows people to work from home so they don’t have to have as many employees in their buildings.”
The retail sector has taken a substantial hit in the last year due to the pandemic-related rise of e-commerce. Moody’s analytics project neighborhood and community shopping center vacancy rates to reach 12.7% in 2021, up from 10.5% in 2020.
Hare said she anticipates the price of leases to drop as landlords have trouble finding businesses to occupy properties, an effect she is already seeing unfold.
“I own some commercial property in Norman, and I’ve got one building that’s about 3,000 square feet in southwest Norman that has been on the market since last October,” Hare said. “The tenants are going to be vacating soon, and I have not seen any play on that.”
Hare said due to little market activity on leases, she is considering selling the property.
“I may see if I can do better that way because i’m just not seeing lease traffic at all, and if I do hold it, then I probably need to drop my rate to see if that might bring somebody on,” Hare said.
Moody analytics projects a decline in rent prices by 7.5% in 2021, with average effective office rents not reaching pre-pandemic levels until 2026.
Hare said if the market doesn’t show increased activity soon, rates will start adjusting to reflect the market’s state.
“I wish I had a crystal ball, but I would say if things don’t start picking up in the next 30 to 60 days, you’re going to probably start to see some drops, or if people are giving it until the summer, but I know I’m not going to wait that long,” Hare said.
While most commercial sectors like retail and office space are struggling, that is not the case for the multifamily sector in Oklahoma, according to Mike Buhl of Commercial Realty Resources Co.
Buhl said in April 2020, as moratoriums were placed on evictions, there was a widely-believed theory that tenants were not going to pay rent. But the market has remained strong, largely due to stimulus money and increased unemployment benefits.
According to a 2020 multifamily apartment report for the Oklahoma City metro, year-end total sales amounted to $404.6 million, down from $541.3 million in 2019. While $136 million seems like a significant drop off, it’s more of a return to the mean, Buhl said.
The five-year average for total sales in the Oklahoma City metro is $419.4 million.
“It’s kind of the opposite of what everybody expected was going to happen, but when you look at early 2020 up to now, the numbers have been incredibly strong,” Buhl said.