But now, retail – the brick-and-mortar variety – is back, ironically partly as a result of that past deterioration of value: “Retail has really benefited from the fact there hasn’t been a lot of new supply built,” Friedman said.
While other areas languish, retail shines
Moreover, the sector is thriving even as other areas in the commercial space continue to feel the negative impact of a changed world. “Office has been disrupted because more people are working from home today versus pre-pandemic, and that’s caused people to reduce their footprint at the office,” Friedman said.
Then there’s the need for human interaction after a period requiring physical distancing in the dark days of a global pandemic: “More and more people are wanting experiences,” he said. “They want to go to retail stores and so forth, and that’s what is driving that business.”
Some retail elements are doing better than others – those Friedman deems as essential or critical. Think of it this way: When was the last time you got a haircut or got your nails done via the internet? “There’s certain pieces of retail that continue to function really well – the essential or critical retail. People have to go to the store – picking up items from the grocery store, or dry cleaners, or even going to the hair salon.”
It’s all about the balance sheet
One of the biggest culprits in eroding value are higher interest rates that continue to have a significant impact on the commercial real estate market, Friedman noted. “Interest rates are having a huge impact across all commercial real estate assets,” he said. “Take away office which is going through distress, but most commercial real estate assets are performing really well. Most assets are hitting their budgeted numbers.”
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