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Posts tagged "pennsylvania"

Home» Posts tagged "pennsylvania"

Central PA Loses Rite Aid and Harsco HQs – A Look at Causes & Impact

Posted on September 27, 2021 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Office Leasing No Comments

In the span of about one week, both Rite Aid and Harsco made the major announcement that they would be transitioning their headquarters out of Central Pennsylvania and into Philadelphia. These major companies account for significant commercial office space and even more local jobs that now hang in the balance. The physical space is the most obvious asset to become vacated in the move. Rite Aid accounts for 205,000 square feet of space located at 30 Hunter Lane in Camp Hill. And Harsco currently occupies approximately 40,000 square feet of space located at 350 Poplar Church Road in Camp Hill. The relocation of these two company headquarters will result in an increase in vacancy in the Harrisburg West Submarket from 10% to 12.45%. In addition to physical space, local jobs, particularly the ones that are not conducive to a virtual work environment, are uncertain to make the transition.

According to the information shared in the official announcements from both Rite Aid and Harsco, we learned some valuable information about the plans for the transition, what fueled their decision, and how this stands to impact local jobs immediately and into the future. Keep reading to learn what these reasons are, how COVID-19 plays a role (or didn’t), and what this could predict of other companies choosing to do the same in the future.

Remote-First Work Approach

According to Fox News, Rite Aid is transitioning to a “remote-first work approach for corporate associates. Rite Aid stated that they had been closely monitoring associates who have been successfully working remotely since the early days of the pandemic. This provided valuable insight into how employees viewed this flexible style of work and the results it yielded. An internal survey found that a vast majority of these associates preferred working from home and found themselves to be more productive in their work.

Conversely, Harsco’s plans do not call for a hybrid workplace. Their new location is in the center of the city in Philadelphia and current plans point to transitioning back to working face-to-face.

Interestingly, a recent CoStar survey examined employee readiness to return to a physical work environment. Though the majority of workers responded that they were “somewhat okay” with returning to the office, a notable number of people expressed hesitation and concern about returning to work. Broken down by generation, ethnicity, and gender, the results look like this.

Rite Aid’s focus on moving to a new headquarters that accommodates an effective remote-first work approach makes sense. They are listening to the preferences (and hesitations) of their employees and using this as an opportunity to transition to a work style that fits the style of their team now and into the future.

The Appeal of Collaboration Space

Allowing for more employees to work remotely doesn’t fully explain why Rite Aid would pull its headquarters from Camp Hill and move to a more expensive market like Philadelphia. But maybe this will. In its official announcement, Rite Aid explained that its new model for use of its physical locations would be supported by a network of collaboration centers throughout the company’s geographic footprint. Its official headquarters in Philadelphia is a space specifically designed for in-person collaboration and company gatherings, instead of office spaces. This means what while more employees than ever will be working remotely when they do need to come together, the space they have is conducive for effective collaboration.

Both Companies’ Draw to Larger and Diverse Talent Pool

As is often said in real estate, it’s all about location, location, location. The new Rite Aid headquarters will be in Philadelphia’s Navy Yard district, an area that the city has been building up rapidly in recent years. This is an attractive area for a business because of its surrounding talent pool that is growing as rapidly as its new and accommodating options for office space. When hiring for positions that require in-person work, Rite Aid will now attract talent from the greater Philadelphia market as opposed to the more rural and much smaller Central Pennsylvania market.

Harsco, the company which was established in 1853 as the Harrisburg Car Company, operates in more than 30 counties and employs 12,000 people, but only about 100 in the Harrisburg area. Quite simply, it has outgrown this market. According to CBS21 News, Nick Grasberger, Chairman and CEO of Harsco Corporation says “We are confident that this move to America’s sixth-largest city will provide us with more options to the future resources needed to fuel our growth.”

Closer Proximity to Customers and Federal Government Agencies

One more reason Rite Aid shared for its decision to move its headquarters is its desire to be more centrally located to its customer base as well as federal government agencies. Philadelphia is a much larger market, sixth in the nation in fact, so there is little argument that its new headquarters will place it closer to a larger customer base, especially one that is urban and with greater diversity.

Speaking to the federal government agencies point, both companies are located within close proximity to state government, with the capital city right over the bridge from current headquarters in Camp Hill. The move is not to say that state issues and the connections made in Central PA are not of value, but it appears both have eyes on national growth. Making the decision now to move to a location with more federal government representation and connections is a strategic decision for the future.

What this Means for Central PA

Though the loss of the headquarters of two sizeable companies, both within a very close time frame, comes as a notable blow to Central PA, there may be a silver lining in all of this. Both companies were intentional about addressing the concern over lost jobs and focused on their intent to preserve as many local jobs as possible during the transition while opening up new avenues for job creation. The actual impact on local jobs remains to be seen, and with that comes the trickle-down impact on other industries such as hotels, restaurants, and retail stores that rely on the business from individuals who live, work, and play in Central PA.

Additionally, the loss of Rite Aid and Harsco will create a significant vacancy in commercial real estate in the local market. It remains to be seen what will become of their vacated space and what business will ultimately make use of it. With every loss comes opportunity. Whatever business moves into this space also brings the potential for jobs and economic growth. On the bright side, both companies have chosen to maintain headquarters in Pennsylvania which is better than moving outside the borders to a neighboring state. Both anticipate being in their new Philadelphia offices by 2023, providing ample notice for transition both for the business as well as for the Central PA and Philadelphia markets.

[Online Resources] Real Estate, camp hill, central pennsylvania, Commercial Real Estate, Economy, harriburg, harsco, headquarters, hq, impact, jobs, local, Mike Kushner, moving, news, offices, Omni Realty Group, pa, pennsylvania, philadelphia, regional, remote work, rite aid, trends, virtual work, virtual workspace

Top 10 Issues Affecting Real Estate – Part II

Posted on September 6, 2021 by Mike Kushner in Blog, Commercial Real Estate No Comments

In Part I of the “Top 10 Issues Affecting Real Estate” we covered topics 1-5 of the top issues we expect to have a lasting and immediate impact on real estate here in Central Pennsylvania and across the United States. If you missed it, start here!

Keep reading if you’re ready to dive deeper into issues #6-10 as we continue down the list of the most pertinent topics to real estate as they apply to various sectors.

#6 Housing Supply and Affordability

Decades of underinvestment and underbuilding have created a shortage of housing in America that is more dire than previously expected and will require a concerted, long-term nationwide commitment to overcome. As it stands, there are three things that most can agree on in the current housing market: 1) there is a tremendous need for affordable housing; 2) there continues to be a sentiment of a “Not in My Back Yard” mentality; and 3) there’s an ongoing supply deficit of market-rate housing.

A severe lack of new construction and prolonged underinvestment has led to an acute shortage of available housing to the detriment of the economy and certain segments of the public. This trend affects every region of the country, creating an “underbuilding gap” of 5.5 to 6.8 million housing units since 2001.

#7 Political Polarization

Simply put, we are squandering resources as we try to address problems that arise from the partisan divide, rather than problems confronting us as common issues. This hinders our productivity and therefore the nation’s economic strength. And the real estate industry’s well-being is a function of our economic growth. The economy and the real estate industry would be far healthier, as would American society, if the pattern of party-line voting in the halls of Congress could be transcended in favor of something very traditional: the defining of politics as the art of compromise.

#8 Economic Structural Change

What we’re seeing is many investors increasing their focus on property management aimed at retaining tenants and defending cash flow, while selectively seeking ‘value-add’ properties amenable to active asset management. The thinking is “focus on what you can control” during this period where macro-level uncertainty is the governing headwind at the policy level in terms of the structural problems in this economy. This is a significant economic structural change. Additionally, Cap rates ranging, on average, from 5% for apartments to 6.6% for offices are keeping pricing rich compared with the risk inherent in that underwriting uncertainty.

#9 Adaptive Reuse Reinvented

Adaptive reuse is not a new terminology but since COVID-19 it’s evolved into a re-examination of our suburban communities to reposition them for transformation before the opportunity for change passes them over. The trend we see now, and one that stands to have a large impact on commercial real estate is addressing the challenge of what to do with hundreds of defunct suburban malls and thousands of empty Big-Box retail stores that are surrounded by desirable and affordable neighborhoods. This makes it to the Top #10 list for four main reasons:

  1. Reconnecting our communities from what the Interstate Highway system divided from the 1950s to the 1980s
  2. Preventing blight that developed in our dense urban cities from flowing to the suburbs and secondary MSAs
  3. Restoring much-needed greenspace to our neighborhoods and cities that can germinate interaction of diverse demographic groups
  4. Promoting good ESG and diversity, equity, and inclusion policies

#10 Bifurcation of Capital Markets

Looking back over the last year and a half, what becomes clear is how different the market-changing event of COVID-19 was compared to prior market corrections. While transaction volume is slowly recovering, it’s still well below pre-COVID levels. Furthermore, the market has not seen the volume of expected distress sales, but there is plenty of capital ready to deploy! As we look to the remainder of 2021 and into 2022, performance will dictate the amount of distress and losses, and risk management should dictate markets, property types, leverage, loan structure, and pricing for mortgage debt.  The next year should also tell us if commercial real estate debt was too rich and whether perceived risk underestimated where pricing should have been.

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Among issues 6-10, which one do you believe will last the longest or have the greatest impact? Start a conversation by leaving a comment below!

And be sure to visit Part I to learn about issues #1-#5!

[Online Resources] Real Estate, advice, agent, blog, broker, businesses, buy, central pa, Commercial Real Estate, CRE, employees, expert, factors, funding, government, harrisburg, home office, industrial, infrastructure, insight, issues, landlord, laws, lease, logistics, Mike Kushner, office, office environment, Omni Realty Group, pa, pennsylvania, professional, property, remote working, retail, sell, taxes, top 10, trends, virtual office

Is a new kind of “crash” on the horizon for real estate?

Posted on August 30, 2021 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

It doesn’t take more than a quick glance through the news to read something about the fast and wild real estate market that has risen from the chaos of a global pandemic. Listings are selling within days of hitting the market, well above asking price, and construction can hardly keep up with the demand for new residential and commercial properties. There are many factors impacting the temperature of the market which make it quite different than the real estate “boom” we know all too well from 2008 – as well as the crash that followed.

Should real estate professionals as well as buyers, sellers, and builders be wary of a similar crash on the horizon? Without a doubt, the market cannot sustain this pace indefinitely, but it also doesn’t mean it will end in a crash-and-burn (or rather explosive) style that it did in 2008. Keep reading for a high-level overview of why the 2021 real estate boom is unique, and what we can expect as the tides inevitably turn.

Noteworthy Differences Between 2021 and 2008

Lower leverage and higher down payments – When the market corrected itself in 2008, overleveraged home buyers brought down the housing market, and some of that contagion spread throughout the rest of the property markets quickly causing a “wildfire” of sorts. As we now approach Q4 of 2021, the housing market is robust with buyers coming in with lower leverage than ever. Despite record-high housing prices, we’re also seeing a record-high percentage of house buyers bringing in 20% down payment or better. Meanwhile, 26% of all houses are sold to cash buyers. With so much money being printed by the Federal Reserve and still tight underwriting standards, only the most well-qualified house buyers are getting a chance to buy and even they are swamping the available inventory.

Slow and low construction – Housing construction levels remain well below that of the 2005–2007 period, which preceded the 2008–2010 correction. Part of that is due to wary housing builders who lived through the chaos of 2008. Another consideration is the disrupted supply chains due to COVID-19 deaths, illnesses, and lockdowns. Until we can fully resolve the prolonged impact of COVID-19 on a global basis, we can expect to deal with supply chain issues and higher prices from inadequate supply. And unfortunately, with the way that variants are arising from all the global hot spots, combined with anti-vaxxers, it’s going to be a long haul out of this storm.

Falling interest rates – Right now interest rates remain at record lows and falling. Interest rates will continue to fall during the current inflation spike and after; that’s how the mechanism of Federal Reserve money printing works. But it’s not advised to expect interest rates to climb just because rates are low today. Until the Federal Reserve changes its policy direction, there is no catalyst for higher interest rates, at least not yet.

Preparing for Impact: What kind of crash to expect?

Collectively, real estate professionals agree that a crash is on the horizon for office and retail real estate. Although “crash” may be too strong of a word – rather we should view it as a natural flow to the ebb we’ve experienced, and a course correction like what must occur after any major market shift.

Here are some important things that are boiling under the surface that will have an impact on the market sooner than later. Even with the general reopening of the U.S. economy, nationally office space demand is nowhere near what the still high asking prices for office buildings would imply. Furthermore, retail is getting crushed by online shopping, which reached escape velocity during the COVID-19 lockdowns. So, those two property segments have a lot of room to fall until property owners figure out how to adapt. The hard reality is that many commercial property owners may simply run out of cash before they can adapt and some of that price drop may spread to neighboring housing in 2022–2023.

Our current market is driven by supply and demand.  While no one can predict the future with 100% accuracy, I don’t think we are heading for a catastrophic “crash” per se. Rather, I see the housing market continuing strong for at least eight to ten months before we see a significant slowdown and evening out.

Key Takeaways

The bottom line is that there is a property market readjustment coming, but it’ll be quite different from what the United States experienced in 2008. Those circumstances were uniquely reckless and volatile. Though real estate will always be (not crazy about this wording), often at a rapid pace, the market right now is not a castle built on quicksand as it was 13 years ago. As a whole, the nation has learned from these mistakes and is not endorsing overleveraging of buyers. Additionally, construction has slowed for various reasons, most beyond our control, which has naturally put some “brakes” on the market.

The most important takeaway is for potential real estate buyers. As it stands, there is no general advantage to wait. As interest rates fall, housing becomes more affordable at ever-higher prices. If you are in the market for property right now, then buy right now. Simply put, the market will continue to shift and where some pros lessen, others will emerge in your favor. The best move is to hunt for opportunities overlooked by others, so you don’t end up in an impossible bidding war or jump into a property that really isn’t the right fit for you. Don’t get caught up in the manufactured chaos but remain steady in your thinking and purchasing. Most importantly, link arms with a trusted real estate professional who can help you navigate the choppy waters of the market – now and into the future.

What is your take on the current real estate market and the potential for a crash in the future? Do you agree with this prediction or have one of your own to share? Join the conversation by leaving a comment!

[Online Resources] Real Estate, 2008, 2021, agent, analytics, boom, broker, bubble, burst, buyer, buyers agent, central pa, Commercial Real Estate, costs, CRE, data, expenses, harrisburg, interest ratings, land, landlord, local, market, Mike Kushner, national, Omni Realty Group, pennsylvania, pricing, professional, property, property value, regional, renter, report, seller, tenant, tenant representative, trends, united states

Top 10 Issues Affecting Real Estate – Part I

Posted on August 23, 2021 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

We live in a rapidly changing world, and such changes impact every person, place, and industry either directly or indirectly. First, this was due to rapidly changing technology, which still has a profound impact on our daily lives. We live in a time where technology is changing more in a few months than it previously would in years or decades. This has led to great advancements, life-saving solutions, and modern conveniences, unlike anything the generations before us could imagine.

But in the shadows of the sudden onset of a global pandemic, some changes that have taken place recently were not so helpful or welcoming. Every business has felt the blow of COVID-19, and some did not survive the punch. For those who were able to adapt and survive, changes had to take place. Looking at commercial real estate, the most significant changes can be grouped into 10 core issues. Let’s take a look at the first five issues that have already and will continue to affect the real estate market for years to come.

#1 Remote and Flexible Work Environments

Over the summer, businesses began to return to in-person work environments, some partially and others fully. As of mid-June, it was estimated that 32% of United States businesses had reopened their physical office locations and employees were returning to (somewhat) normal work schedules. Nevertheless, commercial properties need to be prepared for lasting changes as the result, not only of this global pandemic but other factors that had been on the rise for quite some time.

Remote working, the acceleration of internet retail, and the demand for larger and more natural spaces and other pandemic-era behaviors have created the “perfect storm” to drive significant change in remote work and mobility in commercial real estate. One of the greatest lessons learned during COVID is the escalating demand for more flexible, easily adaptable, and sharable spaces and CRE professionals need to be prepared to make their spaces more conducive in order to meet these demands and remain competitive.

#2 Technology Acceleration and Innovation

Technology continues to hold its place high on this top 10 list, but this year for a slightly different reason. In the wake of COVID-19, more people than ever before had to rapidly adapt and accept technology (particularly those who allowed for remote interactions with the world) as a way of life. The question before us now is what new habits have formed as such, and how many people will revert to “old tech” ways of doing things. Our prediction is that a lot of the new technology people had been trained to use over the last 18 months will “stick” and as a result, there is a higher comfort level – especially among older generations – with using remote technologies to live, work, and entertain.

For commercial real estate, the biggest impact can be seen in cybersecurity, supply chain logistics, and price instability. None of these are new concepts, but in a span of months if not weeks in some cases, the world saw high profile hacks, shortages of resources like microchips, lumber and labor, and rising prices across the board. The accelerated upgrade of connectivity, security, and hosted processes mean utilization is being maximized and any place is now a potential workplace. This creates new pools of vacancy and pools of availability enabled by technology.

#3 Environmental, Social, and Governance Initiatives

Environmental, Social, and Governance (ESG) programs in real estate continue to be one of the best ways to reduce carbon emissions, accrete value, and demonstrate reputational value in the market. This was greatly accelerated during the onset of COVID-19. At the same time, workforce development, Diversity, Equity, and Inclusion initiatives, and recognition of the importance of health and wellness in commercial real estate are setting new expectations for building operations and how to engage stakeholders and the communities in which real estate owners and users invest.

The expertise, creativity, and innovation that the real estate (and finance) industry is well known for are highly valuable for assessing and mitigating risk and creating value for investors, occupants, and the capital markets that serve them. The biggest shift to note for this trend is an increased value that real estate professionals can bring to other markets that are creating and implementing ESG programs in an effort to be socially responsible and attract top talent.

#4 Logistics

Simply put, logistics is what makes our economy “work.” It’s at the epicenter of every product-based service and that has never felt more evident than during COVID-19 when so many goods were delayed across the globe, and even domestically. The supply-chain funnel is still recovering as we continue to experience shortages and delays. Logistics post-COVID-19 will disrupt commercial real estate models for years to come. We can expect disruption in commercial real estate capital allocation, with more funding to industrial property and less to retail. There will also be less dependency on physical stores and more on modern eCommerce warehouses that will be increasingly automated with less reliance on labor. The biggest takeaway for commercial real estate professionals is to keep a keen eye on the changing logistical strategies and solutions of the economy. As these cause shifts in the market, the demand for CRE will also shift. Where one sector will turn down, another will rise. We can expect the waves of change to continue to roll in, impacting real estate for years to come in big and permanent ways.

#5 Infrastructure: New Imperatives Emerge

Similar to issue #4, it takes infrastructure to support logistics. The government has turned a keen eye to allocating funding and initiatives to support improved roads, bridges, airports, ports, mass transit, and other traditional infrastructure needs. With billions of dollars in proposed funding, many new imperatives to improve our nation’s infrastructure have emerged. This includes the expansion of broadband, last-mile deliveries to homes and businesses, automation and optimization of systems, and an increased focus on renewables. This is a huge issue to tackle and it seems we’re falling behind the clock with every passing second.

To put this issue into perspective, the American Society of Civil Engineers gives U.S. infrastructure a score of C-, classifying it as “poor” and “at risk,” while the World Economic Forum’s Global Competitiveness Report ranks the U.S. 13th in the world. If the American economy is to remain top tier, we need to invest aggressively and strategically in the future of our infrastructure to keep up with the competition and demand. The funding coming in from Capitol Hill attempts to do this, but the question remains whether it will come quickly enough. Change and improvements take time, even more so when we’re talking about major infrastructure improvements. The United States is racing the rapid advancements of technology and the mindset of an “I want it now” world.

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Among these top 5 issues, which one do you believe will last the longest or have the greatest impact? Start a conversation by leaving a comment below!

And stay tuned for Part II of this topic where we dive deeper into issues #6-10!

[Online Resources] Real Estate, advice, agent, blog, broker, businesses, buy, central pa, Commercial Real Estate, CRE, employees, expert, factors, funding, government, harrisburg, home office, industrial, infrastructure, insight, issues, landlord, laws, lease, logistics, Mike Kushner, office, office environment, Omni Realty Group, pa, pennsylvania, professional, property, remote working, retail, sell, taxes, top 10, trends, virtual office

Commercial Real Estate’s Impact on Last Mile Logistics

Posted on July 15, 2021 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Retail No Comments

Logistics is the relay race that materials and goods compete in every day moving across land, sea, and air cargo to the end-user, and commercial real estate is the field on which it all plays out.

The ability for the items we need to make it from the place in which they are created to where the end-user can access them is essential to our existence. When logistics are inefficient or disrupted on even the smallest scale, it takes virtually no time until the world feels the impact of delayed goods. At a minimum, it’s an inconvenience, but it can quickly escalate into a global panic where progress is delayed and prices skyrocket.

We need no better example as to how this plays out in real life than to look at the impact of COVID-19 on the world’s shipping and distribution, specifically here in the United States. The challenges we continue to face with shipping and receiving items overseas, combined with unprecedented labor shortages have caused scarcity, unlike anything our modern world is used to. And the ripples caused by this disruption left virtually no industry unscathed.

This also shines a spotlight on the importance of last mile logistics, which is the final step of the delivery process from a distribution center or facility to the end-user. Many items delayed by COVID-19 were within miles of reach, but without labor and infrastructure to deliver these items within their usual time frame, basic building materials and household items couldn’t be restocked fast enough to keep shelves full.

Shifting the Modern Logistics Model

How does this relate to commercial real estate? Redundancy and the ability to process disruption are two key elements required to support the fast-moving, high-volume requirements of modern-day logistics. And that is particularly true of the “shop-online-and-deliver-to-me” era in which we find ourselves.

Based upon the challenging lessons learned from the global pandemic, logistics are shifting toward a new model that replaces the decades-old “just-in-time” supply-chain model rooted in tens of thousands of physical retail stores in order to meet the demands of a “shop and take home” economy. Therefore, we should expect to see a disruption in commercial real estate demand and use.  There will be less dependency on physical stores and more on modern eCommerce warehouses that will be increasingly automated with less reliance on labor.

The Golden Triangle

We can then expect the rapid continuation of traditional retail big-box stores being replaced by hundreds of millions of square feet of eCommerce warehouses in an effort to follow the modern logistics infrastructure. These new eCommerce warehouse locations are being developed in what some economists have coined as the “Golden Triangle.” The Golden Triangle refers to an area of the East Midlands that has become renowned for its high density of distribution facilities and being home to some of the biggest names in retail.

The Golden Triangle is the epicenter of last mile logistics. This area that makes up the nation’s logistics infrastructure has never been more vital in a post-WWII era, and this includes a dependency on commercial real estate. As thousands of retail stores shutter their brick and mortar locations in the coming months, the demand for commercial real estate space shifts from retail to industrial with thousands of new logistics and eCommerce fulfillment warehouses opening and expanding within the Golden Triangle.

Impact of Current Events

These trends in commercial real estate and logistics will be further exacerbated by current events such as Biden’s plan for a “go-broad” infrastructure bill. This plan proposes a massive $2.25 trillion to fix America’s rundown infrastructure, “green up” the economy and invest in new technologies. Furthermore, there is the pending mega rail merger between Kansas City Southern and Canadian National that will create the first true Class 1 railroad in North America extending from the deep interior of Canada, down through the center of the United States, and on south to the most vital ports and manufacturing regions in Mexico.

And if that wasn’t enough to ensure massive changes coming down the line that will impact commercial real estate and logistics, there is also the industrial REIT merger between Monmouth MREIC and Sam Zell’s EQC in which he is trading in his office commercial real estate model for a new hybrid-powered industrial real estate model that is going all-in on logistics.

What we’re witnessing is a shattered economy that is rapidly adjusting in order to right the many ships that have veered off course in the wake of the pandemic. While there are many unknowns, what we can be sure to expect is widespread, lasting changes sweeping the commercial real estate market – some we’ve seen coming for quite a while, and others that will completely take us by storm.

[Online Resources] Real Estate, agent, broker, buyer, cargo, commerce, Commercial Real Estate, CRE, distribution, ecommerce, Economy, goods, industrial, landlord, last mile, lease, materials, Mike Kushner, office, Omni, pennsylvania, representative, retail, sale, shipment, shipping, tenant, trends, united states, warehouse, warehousing

Central PA’s Top Commercial Real Estate Leases in 2020

Posted on February 22, 2021 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Local Market, Office Leasing, Trends No Comments

 

In spite of 2020’s black swan event (COVID-19), leasing activity in Central Pennsylvania continued with mixed results. Normally insulated from strong economic downturns, the coronavirus tested the Central Pennsylvania Region and there are reasons for both concern and optimism.

On the negative side: massive job losses in retail and a significant manufacturing base could cause serious disruption. Roughly 30,000 people were employed in the retail sector in March, and close to that number were also employed in manufacturing. Though manufacturing’s future remains less clear and the market could be buoyed by the region’s deep presence of food production, retail has been hard hit by the shutdown.

While being the state’s capital will provide some shelter in the coming months, Pennsylvania’s fiscal situation is a mess. Financial troubles could portend future government layoffs and by the third quarter, the state had already cut 2,500 government jobs.

There’s little chance the economy doesn’t cool in Central Pennsylvania but the market does have some factors working in its favor. BLS data shows the market has lost about 5% of its total non-farm employment levels since March. While this is obviously a significant reduction, it does compare well with nearby Lehigh Valley and Pittsburgh. While Harrisburg’s demographic gains won’t raise any eyebrows, the region does stand out in Pennsylvania. Cumberland County is one of the fastest-growing counties in the state, likely aided by the growing logistics and warehouse presence along the Carlisle Corridor.

The logistics sector is expected to hold up well and perhaps even grow as e-commerce continues its acceleration. An Adobe report from June showed that online spending was up 77% year over year, representing growth in e-commerce that experts were not forecasting the country to reach until 2026. Central Pennsylvania’s location is prime for shipping, and such a scenario could lead to more jobs and perhaps fuel additional growth in population.

Additionally, Central Pennsylvania is also trying to evolve into a knowledge-based economy and has adopted business-friendly incentives that have helped create nearly two dozen tech startups, which have generated 1,000 jobs. Education and health services jobs, which now track evenly with government jobs in the state’s capital, grew by more than 4% annually.

How does the ever-shifting economy impact the commercial real estate market, particularly as it pertains to commercial leases?

It comes as no surprise that industrial real estate leases in 2020 carried the largest square footage, with the top lease coming in at more than 1.1M SF to Lowes Distribution Center in Shippensburg. Additionally, Bob’s Discount Furniture will be moving into the former Best Buy in Lancaster, and Hershey will be getting a new Big Lots in the Hershey Square Shopping Center. The top five flex leases also provided businesses with hundreds of thousands of Class B Flex Space. Keep reading to view the top 5 leases from 2020 for office, retail, industrial, and flex space.

Top 5 Office Leases

#1 – 1929 Lasalle Ave – Bldg 134, Lancaster, PA 17601

High Associates Ltd. leased out the 29,000 SF Class C Office Building built in 1974 to Equipment Depot beginning in January of 2020 for a 1-year term. It had previously been vacant for 164 months.

#2 – 1803 Mt Rose Ave – Bldg B, York, PA 17403

Kinsley Properties leased out the 23,704 SF Class C Office Building built in 1988 to IDS, LLC beginning in February of 2021 for a 5-year term. It had previously been vacant for 13 months.

#3 – 990 Peiffers Ln – NRG Engine Services, Harrisburg, PA 17109

Campbell Commercial Real Estate leased out the 23,382 SF Class B Office Building built in 1987 to UPS Midstream Services Inc. beginning in February of 2020 for an unspecified term.

#4 – 1770 Hempstead Rd – Greenfield Corporate Center, Lancaster, PA 17601

High Associates Ltd. leased out the 16,088 SF Class B Office Building built in 1990 to an unnamed leasee beginning in November of 2020 for unspecified term. It had previously been vacant for 19 months.

#5 – 200 Corporate Center Dr – 200 Corporate Center Dr, Camp Hill, Camp Hill, PA 17011

Cushman & Wakefield leased out the 11,655 SF Class A Office Building built in 1986 to an unnamed leasee in August of 2020 for an unspecified term. It had previously been vacant for 52 months.

Top 5 Retail Leases

#1 – 3975 Columbia Ave, Columbia, PA 17512

The 86,100 SF Class B Retail Building built in 1992 was leased to U-Haul, as the single tenant, beginning in June of 2021.

#2 – 1801 Hempstead Rd – Former Best Buy, Lancaster, PA 17601

Bennett Williams Commercial and ShopCore Properties leased out the 45,915 SF Class B Retail Building built in 2009 to Bob’s Discount Furniture beginning in September of 2020 for a 10-year term. It had previously been vacant for 23 months.

#3 – 921 E Main St – Mount Joy Square Shopping Center, Mount Joy, PA 17552

Bennett Williams Commercial leased out the 44,761 SF Class B Retail Building built in 1989 to an unnamed business beginning in March of 2021. It had previously been vacant for 25 months.

#4 – 1130-1170 Mae St – Hershey Square Shopping Center, Hummelstown, PA 17036

Bennett Williams Commercial leased out the 38,202 SF Class B Retail Building built in 1994 to Big Lots beginning in June of 2020 for a 10-year term. It had previously been vacant for 12 months.

#5 – 4075 E. Market St – York, PA 17402

The Flynn Company leased 27,000 SF Class C Industrial/Manufacturing Building built in 1972 to No Piston, LLC beginning in October of 2020 for a 5-year term.

Top 5 Industrial Leases

#1 – 1 Walnut Bottom Rd – Shippensburg 81 Logistics Center, Shippensburg, PA 17257

Colliers International leased out the 1,100,500 SF Class A Industrial Building completed in 2020 to Lowes Distribution Center beginning in February of 2021. It had previously been a vacant shell space for 160 months.

#2 – 200 Goodman Dr – Building 2, Carlisle, PA 17013

CBRE leased out the 938,828 SF Class A Industrial Building built in 2017 to Syncreon beginning in December 2020. It had previously been vacant for 44 months.

#3 – 951 Centerville Rd – Penn Commerce Center – Building A, Newville, PA 17241

Cushman & Wakefield leased out the 807,998 SF Class A Industrial Building to an unnamed leasee. It had previously been vacant for 5 months.

#4 – 4875 Susquehanna Trl – ES3 LLC Bldg 1, York, PA 17406

The 790,042 SF Class B Industrial Building was leased to ES3, a Professional, Scientific, and Technical Services company, beginning in February 2020 for an unspecified term.

#5 – Centerville Rd – Penn Commerce Center – Building B, Newville, PA 17241

Cushman & Wakefield leased out the 753,000 SF Class B Industrial Building to an unnamed lease beginning on January 2021. It had previously been vacant for 3 months.

Top 5 Flex Leases

#1 – 60-64 Industrial Rd, Elizabethtown, PA 17022

Cushman & Wakefield leased out the 113,720 SF Class B Flex Space completed in 1992 to WillScot beginning in September of 2020. It had previously been a vacant shell space for 13 months.

#2 – 1740 Hempstead Rd – Building 380, Lancaster, PA 17601

High Associates, Ltd. leased out the 34,000 SF Class B Flex Space completed in 1964 to an unnamed business beginning in January of 2021. It had previously been a vacant shell space for 92 months.

#3 – 6400 Flank Dr, Harrisburg, PA 17112 – Harrisburg Area East Ind Submarket

NAI CIR leased out the 32,212 SF Class B Flex Space completed in 1987 to an unnamed business beginning in June of 2020. It had previously been a vacant shell space for 3 months.

#4 – 1000 Kreider Dr – Building A, Middletown, PA 17057

CBRE leased out the 12,030 SF Class B Flex Space completed in 2006 to an unnamed business beginning in August of 2020. It had previously been a vacant shell space for 8 months.

#5 – 3545 Marietta Ave – Silver Spring Center, Lancaster, PA 17601

Prospect Leasing & Management leased out the 7,192 SF Class B Flex Space completed in 1997 to an unnamed business beginning in January of 2021 for a 5-year term. It had previously been a vacant shell space for 6 months.

With so much square footage having exchanged hands in Central PA in 2020, it will be interesting and important to keep an eye on how these businesses impact the region. There were quite a few properties that made it to this list that had sat vacant for years. Now with new tenants, this will drive jobs and contribute to the local economy. And with some of these leasing terms for 5, even 10 years, these businesses have made a commitment to being here long-term.

Among all the top leasing deals that took place in 2020, which sector – office, retail, industrial, or flex – do you think will have the largest and most immediate impact on the Central PA region? Share your thoughts by leaving a comment below.

*Data of the top commercial real estate sales provided by CoStar.

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How COVID-19 Has Impacted Business Insurance

Posted on February 10, 2021 by Mike Kushner in Blog, Local Market, Trends No Comments

The world is still responding and adjusting to the ripple effects that the COVID-19 impact had on every business, industry, and person. Where will it stop? No one knows, but we do know that where impact occurred, so did change. This rings true for the commercial insurance industry which suddenly found itself faced with a ton of unique circumstances. As businesses changed their services and practices to adjust to COVID-19 shutdowns, limitations, and new protocols, many also found themselves reviewing their commercial insurance policies to see where they might be covered for losses.

To help answer some of the unknown on this topic, we looked to a local professional. Alan Hostetler of Alan Hostetler Insurance Agents and Brokers, Inc. has provided us with his insight on the topic of how COVID-19 has impacted business insurance policies here in Central Pennsylvania. Since 1974, Alan Hostetler Insurance Agents and Brokers, Inc. has been providing insurance coverage for Central Pennsylvania. With experience providing personal, commercial, health, and life insurance, Alan brings extensive knowledge and insight to this topic. Keep reading for our Q&A with Alan.

Omni: How has COVID-19 impacted business insurance policies?

Alan: Surprisingly, COVID-19 has had only a minor impact on business insurance policies. This is mostly because the exposure to potential losses incurred during a global pandemic is excluded either by intent or by specific exclusion. Unfortunately for most businesses looking for insurance to cover the cost of various losses incurred due to COVID-19, their business insurance policy was not designed to provide protection from a pandemic.

Omni: What changes do you anticipate being made to insurance policies in light of the global pandemic?

Alan: This is an exposure that cannot be easily measured or assessed, therefore insurance companies will likely avoid even offering “pandemic” coverage.  There may be a few specialty companies that may offer a limited policy (in scope and limits) at a very high premium which will discourage any potential customer. Though (hopefully) a global pandemic of this proportion is not likely to reoccur any time soon, insurance is simply not likely to provide businesses with any sort of protection from such losses in the future.

Omni: What are your thoughts on the UK Supreme Court unanimously ruling in favor of the policyholders regarding the non-damage insurance policy clauses — which cover disease and denial of access to business premises?

Alan: Though I am not familiar with the ruling, I would suggest that the coverage offered in the UK is totally different than offered in the US. Our coverage in the U.S. can vary by state so it is difficult to comment on the structure of insurance in the UK. There have been several instances in the U.S. that the Business Income coverage has been tested but the courts ruled in favor of the insurance companies. The is no ambiguity in the policy language.

Omni: Do you feel that a similar case may make its way to the US? Share your thoughts on what this might look like.

Alan: There have been several in the U.S. and one namely in New Jersey which was shot down.

Omni: What advice do you have for local business owners regarding how they are insured and how they may protect themselves in the future from something like a global pandemic?

Alan: The last Pandemic in the U.S. was the Spanish Flu at the end of World War I. The insurance industry will not be the answer.  If a company does offer the coverage it will be with a specific limit of insurance, large deductible, and high premium – so overall, a very undesirable product.

Omni Realty Group thanks Alan for sharing such insightful and candid information. While most businesses would be hopeful that there could be an insurance policy that could act as a magic wand and protect them from all risks and losses, that will never be the case for several compelling reasons. Fortunately, there are plenty of other insurance options to protect other assets that are of value to a business. As for the impact of COVID-19, businesses would do best to remain attentive to ways they can shift their processes to remain an accessible and convenient option to customers until we can work our way through this pandemic.

Do you have a question related to COVID-19 and commercial insurance policies, or an experience to share? Join in the conversation by leaving a comment below.

[Online Resources] Real Estate, alan hostetler, business, business insurance, central pennsylvania, commercial, commercial insurance, Commercial Real Estate, COVID-19, CRE, harrisburg, insurance, insurance agent, insurance broker, insurance policy, Mike Kushner, Omni Realty Group, pennsylvania, real estate agent, real estate broker, retail

Impact of Eliminating Like-Kind-Exchange on Commercial Real Estate

Posted on January 18, 2021 by Mike Kushner in Blog, Commercial Real Estate No Comments

Right before the 2020 election took place, we shared important information as to how any new president of the United States would impact just about everything, including commercial real estate. Specifically, we examined Joe Biden’s plan to introduce a new probate real estate tax that would greatly reduce inheritances in the future as beneficiaries will have to pay tax on non-qualified assets. Now with President-Elect Joe Biden set to become the 46th President of the United States, the tax implications are becoming much more real and worthy of a closer look. Continue reading to learn how his platform will likely impact like-kind-exchange on commercial real estate, and what this could mean for you as a real estate investor.

The History of Like-Kind-Exchanges

Since 1921, investors have been permitted to defer paying capital gains taxes on investment property sales. In return, they must reinvest the proceeds into a similar investment property within a specified time frame, typically 45 days to identify the replacement property and 180 days to complete a transaction. To look at it another way, 1031 exchange (named from Section 1031 of the U.S. Internal Revenue Code to which it refers) is a swap of properties that are held for business or investment purposes. The properties being exchanged must be considered like-kind in the eyes of the IRS for capital gains taxes to be deferred. Biden’s policy proposal, which is referred to as “The Biden Plan for Mobilizing American Talent and Heart to Create a 21st Century Caregiving and Education Workforce” could eliminate 1031 like-kind exchanges for high earning real estate investors.

Proposed Changes

According to Biden’s administration, “The plan will cost $775 billion over 10 years and will be paid for by rolling back unproductive and unequal tax breaks for real estate investors with incomes over $400,000 and taking steps to increase tax compliance for high-income earners.”

The overarching goal of this change is to prevent investors from deferring the payment of taxes on the sale of real estate. On the surface, to those not investing in commercial real estate, such a change may seem positive or even necessary. But recent studies led by the Real Estate Research Consortium concluded that eliminating 1031 exchanges would disrupt many local property markets, harm both tenants and owners, and small investors.

Furthermore, a study conducted by David Ling Ph.D., a professor at the University of Florida, and Milena Petrova Ph.D., an associate professor at Syracuse University, claims that eliminating 1031 exchanges would likely lead to a decrease in commercial real estate prices in many markets, less reinvestment in commercial and residential real estate, a greater use of leverage to finance acquisitions, and an increase in investment holding periods that would result in a decrease in market liquidity and a slowdown in related industries.

The (Unintended) Impact

Simply put, the entire real estate sector benefits from such exchanges. Brokers and agents receive more deals, banks and mortgage lenders gain more borrowers, other property owners benefit from an increase in demand for real estate, tenants receive more affordable housing options, and cities and localities benefit from higher property taxes and more investments back into their real estate economy. So whatever perceived benefit Biden’s administration hopes to gain from eliminating like-kind exchanges in commercial real estate, they will certainly pay for, ten-fold, in negative consequences.

Here are just a few examples we can immediately spot. In the longer run, rents would need to increase from eight to 13 percent to offset the effects of elimination, and cost increases would be more pronounced in high-tax states (such as NY, NJ, CA, HI, MN). And in case anyone still believes that 1031 exchanges are an end-around used by the rich to never pay taxes, the estimated taxes paid when an exchange is followed by a taxable sale are on average 19 percent higher than taxes paid when an ordinary sale is followed by an ordinary sale.

A Done Deal?

Like anything in government and politics, nothing is set in stone until it’s, well, set in stone (or ink). So, Biden’s changes are by no means a done deal, and may take a good deal of time to come to fruition, if at all. Upon Biden becoming the nation’s 46th president, this does open the door to a whole host of changes that very well may impact commercial real estate investors on the take front. The best thing you can do right now, and this goes for anyone, not just CRE investors, is to meet with a tax advisor, tax, attorney, CPA, etc., to review what changes could be coming down the line and how this should impact the decisions you’re making today. As you prepare to close out your taxes for 2020, you may wish to make some changes and move things around to put you in a more favorable position for any changes that may be coming down the line.

How might the eliminations of like-kind-exchanges impact your financial future and the decisions you make regarding real estate? Do you feel this is a likely threat to CRE investments?

Join in the conversation and share your opinion by leaving a comment below.

[Online Resources] Real Estate, biden, central pa, Commercial Real Estate, CRE, finances, investment, Like-Kind-Exchange, Mike Kushner, money, Omni Realty Group, pennsylvania, property, real estate investment, real estate tax, taxes

The Pandemic’s Uneven Effect on Consumer Spending

Posted on December 30, 2020 by Mike Kushner in Blog, Retail No Comments

When COVID-19 hit and the U.S. went into full lockdown, consumer spending took a sharp turn. Heading out to restaurants, bars, concerts, or the movies was no longer an option. Even now, nine months later, we are far from returning to how things were. The general public is wary or deterred by new policies like limited capacity, wearing face masks, and social distancing. This has all had a profound impact on how we’re spending our money, particularly on services or experiences. Instead, we’ve shifted our spending to physical goods to find other means of entertainment and enjoyment, and to make our homes more comfortable, because we’re spending considerably more time at home.

Considering all of this, plus the fact that 10+ million Americans are still jobless, the sluggish recovery of consumer spending on services is cause for concern. At the same time, retailers selling goods, especially online and through contact-free delivery, are in a position to grow their market share. Keep reading to learn how COVID-19 has had an uneven impact on spending, and what this might mean for our economy and commercial real estate long-term.

Spending Shifts from Services to Goods

Based on data from U.S. Bureau of Economic Analysis, spending on goods quickly recovered from the initial shock of the pandemic, returning to growth as early as June. But consumer spending on services is still more than 6 percent off pre-pandemic levels.

The reasoning behind these numbers is straightforward. As the pandemic severely limited people’s option to spend money on services such as dining out, traveling, and other leisurely activities, their spending shifted to physical goods because this was both more accessible and deemed the safer option for enjoyment and entertainment. People weren’t visiting public pools or taking vacations, so spending on items like swimming pools, bicycles, kayaks, etc. skyrocketed. For many retailers, these items were out of stock nearly all summer.

Furthermore, people began reallocating discretionary income formerly used for travel and entertainment to home improvements and renovations. We saw things like new appliances, cabinetry, and mattresses run out of stock while hotels, restaurants, casinos, and event venues sit vacant.

A Double-Edged Sword for Economic Recovery

While it’s certainly positive to see overall spending levels recover relatively quickly, the slow recovery of consumer spending on services is concerning for several reasons. First, the United States is a service economy, as the U.S. GDP reveals. In 2019, personal consumption expenditure on services accounted for 47 percent of the gross domestic product, making it by far the biggest contributor to the country’s economic output.

As the following chart shows, clothing and accessories stores experienced a 30 percent decline in sales compared to the same period of 2019. Similarly, food services and drinking places were hit with a 20 percent spending decline compared to last year’s total. Department stores and electronics experienced a 15 percent decline through three quarters of 2020.

At the other end of the spectrum, non-store retailers, building material and garden dealers, as well as grocery stores, have seen double-digit growth rates in the first nine months of 2020, as consumers shifted much of their spending online and outdoor activities boomed in face of the COVID-19 threat.

What This Means for Retail Locations

Some industries have found ways to safely reopen with limited capacity and new policies in place such as social distancing and mandating facemasks be worn. But even nine months after the start of the pandemic, things are far from “normal” and this includes bottom-line sales. Restaurants, bars, and hotels can only operate at 50% capacity or less which is a huge blow to the amount of business they can do in any given week or month. And shopping at retail locations is quickly being replaced by online shopping.

While some retailers have been able to accommodate customers online, many others, particularly small businesses and boutiques, were not equipped to make this shift. For businesses already on the brink of making ends meet, the pandemic was the straw, rather the wrecking ball, that broke the camel’s back. We see shopping centers with major vacancies and entire chains of corporate stores and restaurants bow out of business.

For commercial real estate, especially shopping centers and malls, the future is bleak. In contrast industrial real estate is rising in demand because of big online retailers needing to increase their storage and rapid distribution. People want their essentials (and even non-essentials) delivered quickly to their door-step. With businesses like Amazon offering free 2-day delivery for most items, ample and accessible storage facilities have never been more important.

And for consumers, the biggest takeaway from this major shift in spending is to be mindful and intentional about how and where you invest your resources. How we spend impacts the economy. Though you may hear phrases like “shop local” and think your individual spending is just a drop in the bucket, when all those drops are put together, it has a large impact. For those that don’t feel comfortable dining out, you can still support your local restaurants through takeout or delivery. And if you don’t desire shopping in-store, consider supporting small businesses through curbside pick-up or having items shipped to your home. Our collective spending habits today, even amidst a pandemic, are painting the picture of our economy well into the future.

Even after the impact of COVID-19 on the economy begins to correct itself, what do you think the impact on consumer spending will be long-term? Comments are welcome below!

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COVID-19 Shines Spotlight on Value of E-Commerce and Industrial Real Estate

Posted on November 16, 2020 by Mike Kushner in Blog No Comments

As we approach the holiday season, and with holiday shopping already in full swing, it’s become a glaring truth that COVID-19 has divided retail companies into two distinct groups: those with functioning e-commerce businesses, and those without.

During the first 10 days of the holiday shopping season, U.S. consumers spent $21.7 billion online, a 21% year-over-year jump, according to Adobe Analytics. This likely stems from the fact that 63% of consumers are avoiding stores and buying more online, with health concerns due to the pandemic driving that decision for 81% of shoppers. Furthermore, U.S. consumers are poised to spend $198.73 billion with online retailers this holiday season. That would be a 43.3% year-over-year jump from $138.65 billion for the same November-December period in 2019.

What this means for businesses hoping to get in on some of these holiday shopping dollars is that they need to have an easy and efficient way for consumers to buy their products online and have them quickly delivered to their doorstep. For many businesses that don’t already have this infrastructure in place, they could sustain a huge blow this holiday season that may be too much to recover from. In contrast, businesses like Amazon and Walmart who are leading the charge in e-commerce are set to have a banner year when it comes to online holiday shopping.

Central PA Region Boasts Strong Market for Industrial Real Estate

In order to support a thriving e-commerce business, it requires ample and functional industrial real estate space to store and distribute massive amounts of inventory. Right here in Central Pennsylvania, Amazon and Walmart remain the most active industrial real estate leasees for Q3 2020. And it makes sense as to why. Amazon is by far the leader of the pack with nearly 13 million square feet of industrial space in this market alone. Coming in second is Walmart with 3 million square feet, and all other players in the field far behind that. This shows just how much of an e-commerce monster Amazon really is and how well prepared they are to take full advantage of this holiday season’s online retail.

And it’s no coincidence that the leading e-commerce businesses have chosen to take stock in the Central Pennsylvania region. The I-81 corridor is widely recognized as a hot spot for industrial real estate, warehousing, and distribution. With easy access to all the major markets and highways, it’s obvious why the Lehigh Valley ranks #7 and Harrisburg ranks #18 on the national list of net absorption as share of inventory. Additionally, Lehigh Valley’s rent growth came in at 4.9% year-over-year, making it among the top 20 cities in the nation.

Industrial Real Estate Trends and Tracking

When we look at the largest industrial leases in Pennsylvania, we can quickly identify the strength of the Central Pennsylvania region and the I-80 Corridor, much of which is occupied by e-commerce businesses.

What’s also interesting to see when mapped out is how the most concentrated industrial real estate markets tend to follow the major roadways, which is what fuels manufacturing, warehousing, and distribution. Quick and convenient access to these roadways is essential for e-commerce businesses who need to deliver product to customers quickly and efficiently.

And with one more graph, we can appreciate the peaks and valleys of constantly shifting vacancies in industrial real estate throughout the Central PA region, the most volatile being Lebanon and most steady being York.

Major Takeaways

The longer the pandemic drags on, the more likely that consumers stick to their new habits. Companies are racing to adapt. The stakes are high, especially for small businesses that were slow to embrace the e-commerce trend and are now desperately trying to catch up. Previously, many retailers might have said e-commerce is a relatively small part of the overall business, maybe 10%. Now that’s grown dramatically to 30% or 40% plus for many retailers and heading into the holiday season with most likely record-setting online sales, businesses who relied on foot-traffic are not likely to rise with the tide.

Even e-commerce giants can’t afford a misstep. This is a pivotal year for all retail and industrial businesses wh rely on manufacturing, storage, and distribution of product to bolster sales. Those who were not prepared for the major shift to online shopping this holiday season will feel it in their bottom line. For those who have not already adapted, the best time is and will always be ‘now.’

 

 

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