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Commercial real estate pros point to a booming market

Sean Doordan, St. John Properties, said that while buildings downtown are struggling to attract users, mixed-use spaces in the suburbs are in demand. (The Daily Record File photo)

Think commercial real estate and the pandemic and you might also think: disaster.

Office buildings deserted as employees work from home. Restaurants shuttered, only recently beginning to reopen. Stores suffering as wary customers favor online purchases and deliveries.

These scenarios have certainly played out over the last two years. However, experts in the commercial real estate business, both nationally and locally, paint a far more optimistic portrait of the industry as the pandemic appears to wane.

“The commercial real estate industry is positioned at the forefront of the recovery,” said a column published earlier this year by Deloitte, a multinational professional services network. “Despite some financial concerns and an evolving regulatory environment, optimism around fundamentals prevails.”

Another report, by PricewaterhouseCoopers, or PwC, a multinational professional services network of firms, and the Urban Land Institute, said, “Market fundamentals may have improved or faltered in each sector, and some trends accelerated, but the essential market dynamics remain much the same as before.”

Locally, commercial real estate professionals go even further, insisting that the market, while not without weak spots and challenges, is in some respects booming.

“The whole pandemic has actually been a boon to our business,” said Josh Shein, a partner with Trius Lending Partners in Towson, which provides loans for real estate investors, most of whom look to buy small rental properties to rent or flip.

Shein said the last couple of years have seen “a frenzy of activity” as investors buy up available properties throughout the area. He said investors are attracted by the ease of renting and selling, and by the soaring price of real estate, which makes properties good investments – especially as the stock market remains volatile.

The business has its challenges, Shein said, including rising interest rates, a shortage of properties and the still-increasing price of real estate.

“We’re still incredibly bullish and optimistic on this market,” he said. “As is generally the case, over the long haul people still like real estate.”

“We have a pretty robust market,” said Owen Rouse Jr., vice president of investment sales at MacKenzie Commercial Real Estate Services, which has offices throughout central Maryland.

Rouse noted that the local commercial market is undergirded by “eds, meds and feds” – universities, hospitals and the federal government – which he called “great stabilizers on the economy.”

Still, the pandemic has altered parts of the market, especially office space, where design, Rouse said, “is clearly in flux.” He said business leaders are thinking about changes such as getting rid of large conference rooms in favor of smaller ones and creating larger lobby areas and workspaces.

“There is this, ‘How do we make work space better?’ conversation that people are having,” Rouse said.

Office buildings in downtown areas are struggling to lure users, said Sean Doordan, executive vice president for leasing and acquisitions at St. John Properties, a Baltimore-based commercial real estate firm. However, he said that suburban mixed-use space is in demand, as companies and employees increasingly crave shorter commutes, free parking, outdoor space and walkable amenities.

Doordan said he also saw a market in healthy and energy-efficient buildings.

“Everyone is looking for a silver lining in the health care crisis and one positive could be the increased emphasis on developing and maintaining healthy and sustainable buildings,” he said.

Doordan said that partly in response to client requests, St. John Properties has “invested considerable resources to develop protocols and install systems that elevate the quality of indoor air, reduce the building’s carbon footprint, save energy resources and more.”

Meanwhile, local experts say the demand for industrial and warehouse space has skyrocketed in the past couple of years, spurred in part by the rise in e-commerce – which was in part spurred by the pandemic.

Rouse said that a shortage of available sites for industrial buildings contributes to the trend and that rents have soared.

“You have to go to the exurban markets to find suitable land,” he said. “Whatever is built gets used, and that will continue to happen.”

Thomas Fidler, executive vice president/principal at MacKenzie Commercial Real Estate Services, said the company finished 2021 with “a flurry of activity. The market not only came back with demand, it came back two-fold. … We’ve never been so busy.”

Different sectors of commercial real estate have had different challenges and successes, Fidler said. For example, he said, while questions still surround the office market, the food and beverage market is booming, as consumers return in droves to restaurants and bars.

Fidler said a vacant restaurant space in Columbia has attracted close to 30 inquiries: “The flurry of activity for that segment of the industry is really kind of overwhelming.”

Elsewhere, he said, the retail market is “a little bit hit and miss.”

While he is optimistic about the commercial real estate market’s future in Baltimore, Fidler warned that a shortage of adequate sites for shopping centers will be a drag on the retail industry’s growth.

“We’re going to have a challenge in the near future with this lack of good real estate,” he said.