Sources: Retail Dive, Chain Store Age, Creditntell

While many of us stocked up on “stuff” during the pandemic and then refreshed our wardrobes in the reopening period, recent data shows that spending is shifting once again – this time to experiences. Restaurants, travel, concerts, sporting events and more are on tap for Americans this summer as we continue to return to a more active lifestyle. Credit to JLL for the graphic.
Consumers Shift From Goods to Experience

Recently, CNN aired a special reflecting on the news and culture of the 2010s. While the nostalgia cycle seems to speed up as time goes on, we are now already 3 years into the 20s (next year will officially be the “mid-20s”!) and some might say that this decade feels unmoored from any kind of cohesive narrative which makes making sense of the past a difficult enterprise to say the least. In any case, maybe it is time to at least take a first pass at the last decade to figure out “what it all meant.” More than any other decade in my lifetime, the end of the 2010s was truly the end of an era, as a certain virus began having other plans for the world in the waning months of 2019.

Maybe its also time to take stock of where we are 30% into this decade as well. The pandemic came to an “official” end from an administrative standpoint this week, just over 3 years after it started and I think its safe to say that we are still trying to unpack exactly what that spiky little protein has done to change so many things about our way of life. You see, the thing about major global events is that they don’t just change the one thing that they were about, there are downstream impacts that go above and beyond what anyone could have reasonably foreseen. Nowhere has this been more evident in the changes to the way we work.

While most businesses have returned to some form of office work, for many people, working from home is a part of their routine on an occasional, weekly, or even permanent basis. Meaning, less and less of us are in the same place at the same time for 40-50 hours every week. We can debate all we want on whether this is a good or bad thing for workers and companies, but one thing that is abundantly clear is that it has changed commercial real estate forever.

In the office world, skyscrapers sit mostly vacant. A recent New York Times story calculated that New York City has 26 Empire State Buildings worth of empty office space. Chicago has nearly 16 Sears Towers (sorry, it will never be Willis) of vacancy. Go to Houston, Los Angeles, San Francisco, and other major cities and the story will be the same. This has led to a crisis in the regional banking sector, which holds the loans for many of these properties as well of a hollowing out of downtown restaurants and retail.

But while urban cores are now left to figure out how they will reinvent themselves in the remote work era, all those workers (or, as the Japanese call them “salarymen”) are still hanging out somewhere during the daytime. It turns out working from our home offices is no different than our downtown ones – sometimes you just need to step out for lunch. And so, downtown’s loss is the suburbs’ gain. The Wall Street Journal recently wrote about this phenomenon by looking at the record-setting leased rates of retail REITs, where even the enclosed mall portfolio at Simon sits just under 95%. Fast growing urban eatery Sweetgreen recently closed several downtown locations and has seen its percentage of suburban shops go from 35% to 50% since 2019.

Having written about retail real estate since the Great Financial Crisis, its feels somewhat vindicating that our sector is finally having its moment in the sun after being written off for dead by techno-utopianists hailing the great (unprofitable) e-commerce era. But on a more conciliatory note, the thing about real estate is that they aren’t making any more of it. Great locations will draw great tenants in any era, though sometimes the names and business models of those tenants need to change with the times. Perhaps the 2030s will tell the tale of the great office building renaissance.

Mike Jordan