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What to expect from commercial real estate in 2021

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  • CIGI

Gil Borok, President and Chief Executive Officer for Colliers’ United States business joins Yahoo Finance Live to discuss the outlook for commercial real estate in 2021 and break down the benefits for companies moving their offices out of New York.

Video Transcript

MYLES UDLAND: Welcome back to you. Yahoo Finance Live. Myles Udland here in New York. Again, a mixed market as we get underway on this Wednesday morning. The Dow is back in green figures about 20 minutes into today's trading session.

2020 obviously a super challenging year for the commercial real estate business, and the challenges are certainly not over as we get into the next decade. Joining us now to talk a bit more about the outlook for commercial real estate, the future of corporate setups here, Gil Borok is the CEO of Colliers US.

Gil, thanks for joining the program this morning. So let's just start with sort of the impacts that we have seen in 2020 on commercial real estate, things that are realized, not just feared. And then maybe we'll get into some of the concerns that exist in the years ahead.

GIL BOROK: Yeah, thank you. Good morning. You know, as far as 20/20 goes, you have to look at the various asset classes within commercial real estate to really make a statement about what has been realized. I think it's fairly common knowledge that the industrial space, due to the demand in e-commerce, has been hot is probably a good way to describe it. In 2020 there's been more demand for space than supply as e-commerce has taken off.

Retail has been tough and hospitality has been tough as there have been lockdowns and people haven't been able to travel and gather. But there are aspects of retail that have been steadily improving. And in the office sector, of course, the biggest sector, the biggest amount of inventory in the US, we've had lockdowns and we've had very limited capacity, limited number of people going in.

So it hasn't been a complete write-off. People have gone in, but it's been very limited capacity. Landlords are generally still collecting rent, so it hasn't been as unhealthy as it might have seemed at first or might have been feared at first. But of course, that's a lot of inventory that isn't being highly utilized and has raised questions, as we all know, about the future of the office.

JULIE HYMAN: And Gil, it's Julie here. Thanks for being with us. I want to ask as well about the pace involved in all of this. We've talked a lot about acceleration of certain trends that have happened because of the pandemic. Typically real estate cycles are not rapid, right? It takes a while. But this time around, have you had people trying to get out of leases, canceling leases, moving offices, et cetera, at a more rapid clip and in higher volume than we have seen in the past?

GIL BOROK: So I think the answer to that is yes. But usually when, you hit a slowdown, an economic slowdown-- and this is what usually drives real estate demand and real estate movement, so when you hit that slowdown, and this one was caused by the pandemic, obviously. That was the cause, but not necessarily the driver. So we're dealing with a slowdown pandemic-induced.

And then you tend to see, actually, the cycle move fairly quickly. So you tend to see a bunch of sublease space come onto the market, for example, which is exactly what we're seeing. And that tends to happen at a rapid pace. What is more elongated, of course, is the cycle, the growth cycle that we had. And the growth cycle, the demand increase for real estate that you generally see, that takes a number of years, and it takes a number of years to turn. But once it turns, as it has now, then you do actually see fairly quick activity.

And for example, you can see capital markets activity, sales activity, seize up pretty quickly based on a shock or an economic impact would cause that to move fairly quickly once it happens.

- Gil, you mentioned retail real estate. And really, so much of it now continues to sit vacant. I mean, yesterday Macy's come out and say it's going to close 45 stores. JC Penney is practically out of business. Who ultimately steps up and buys these big locations? And then how do you think they're redeveloped?

GIL BOROK: Yeah, it's a good question. Look, I think there's a lot of inventory there that isn't going to sit idle for the long term because people, owners, are fairly creative. And again, you have to look at what retail is being impacted more significantly. And it's generally older malls, perhaps in suburban locations, where you have malls that give experience. And it's anything from movies to attractions to potential health providers being within the mall.

You are definitely seeing a shift. It's not the traditional mall that we used to know, and it's going to change more. But where there's an experience, where the mall owners keep up with the consumer demand, I think those malls are going to be fine in the long run. And they'll transform themselves. They'll re-establish to provide in the space what consumers are looking for.

The older malls that don't have the ability to adapt, I think, are the ones that are going to suffer and probably be repurposed. It's hard to know what for, but you could think of things like condo developments, you know, and perhaps as things stabilize, office towers. And as the economy starts to grow and office becomes more in demand, you could see it being completely repurposed.

JULIE HYMAN: Gil, this is really all helpful to help us understand the sort of difference between the anecdotal data out there and what's actually happening on the ground. And so finally, I would ask you about the suburban versus urban situation. We've seen a residential suburban increase-- boom, dare I say. What's happened on the commercial front with that divide?

GIL BOROK: Yeah, I think it's still, believe it or not, still a little early to comment definitively. But there has been movement to the suburbs. And particularly in large cities, New York, San Francisco, it's very clear that big financial firms, for example, and others are more space than they previously had in suburban areas. It's fairly common. You read now that a number of those firms are taking space in Florida to sort of create a southeastern hub.

So I think what we are going to see, what we are seeing and will see more of, is a spreading out of operations I think at core, in the case of financial firms that have traditionally been headquartered in Manhattan, you know, they're going to stay there. They're going to be headquartered there, but probably with less space and that space dispersed, by and large, around the country or to certain other hubs. I think that's a very real trend.

MYLES UDLAND: All right. Gil Borok is the CEO of Colliers US. Gil, really great to get your thoughts this morning. Thanks so much for joining. We'll talk soon.

GIL BOROK: Thank you Thanks for having me.

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