U.S. mall traffic rebounded this summer as newly vaccinated Americans felt more comfortable leaving their homes. The surge has continued despite growing threats from the fast-spreading COVID-19 delta variant.

“After a year and a half of staying inside, there was a pent-up demand for doing something, and that something could have been just going to a mall,” Sarah Helwig, an assistant vice president at Morningstar Credit Information and Analytics, told The Wall Street Journal.

Mall foot traffic in July surpassed even 2019 levels, according to Placer.ai, a data analytics firm. Mall visits rose 0.7% compared to July 2019, prior to the pandemic. Outdoor malls continued to be more popular.

The rising foot traffic increased retail sales. That also offered good news to mall investors who in the initial months of the pandemic saw profits drastically decline from shutdowns and worried shoppers.

Justin Kennedy, managing partner of 3650 REIT, said his first priority is looking for more malls to invest in.

Still, Challenges Lie Ahead

The U.S. shopping mall sector does face some headwinds in the months ahead, however. Rising COVID-19 infections could make shoppers more comfortable staying home once again, analysts told The Wall Street Journal. Also, vacancy rates are still rising: Vacancies were at 13.7% over the past year for malls with securitized mortgages, according to Morningstar Credit Information and Analytics.

Older malls continue to struggle the most, especially those that have lost large department store tenants.

Also, fewer clothing retailers are signing leases, which is also prompting concerns about filling storefronts. More malls reportedly are considering nontraditional tenants that offer more entertainment options, such as trampoline parks or rock-climbing gyms.

“A trampoline park was not the most desirable tenant to bring to a mall a decade ago,” Corey Bialow, CEO of Bialow Real Estate LLC, a brokerage firm that represents retail tenants, told The Wall Street Journal. “Now there’s not a lot of people taking 30,000- to 50,000-square-foot spaces anywhere in the country.”

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Multifamily units are driving the gains in overall housing starts last month as more apartment projects were initiated. But single-family housing starts fell 2.8% in August to a seasonally adjusted annual rate of 1.076 million units, their second consecutive month of decline, the Commerce Department reported Tuesday. While single-family starts dropped in the West and Midwest, they still rose in the Northeast and South.

“There is certainly a housing shortage, as reflected in the low inventory of homes for sale and in low rental vacancy rates,” said Lawrence Yun, chief economist of the National Association of REALTORS®. “However, a shift toward rental buildings means less access to homeownership over the long run and the accompanying opportunity for wealth gains.”

Rental demand is increasing. The multifamily housing segment is being driven by a demand for rentals as consumers move back to the city and remote workers prepare to return to their offices. Multifamily starts, comprising mostly apartments, climbed 20.65% in August, while multifamily permits, a gauge of future construction, increased by 15.8%.

Demand remains high for newly built single-family homes, but builders face several challenges, including labor and lot shortages and the rising cost of materials.

“Given the housing shortage and the lack of big increases in the construction of single-family homes, home prices will continue to move higher than most people’s income gains,” Yun says. “That’s good news for property owners, but bad news for those wanting to become homeowners.”

The median sales price for a single-family new home in July was $390,500, up 18.4% from the $329,800 median sales price posted a year earlier.

Still, Robert Dietz, chief economist of the National Association of Home Builders, said he is hopeful that new-home inventory will increase over the coming months. Despite this month’s decrease, the number of single-family homes under construction in August—702,000—was the highest since the Great Recession, he said. “While some building materials, like lumber, have seen easing prices, delivery delays and a lack of skilled labor and building lots continue to hold the market back,” he said. But “more inventory is coming for a market that continues to face a housing deficit.”

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Tech firms may be embracing remote work in a big way since the pandemic, but they’re still buying up office buildings too.

Google is still placing big bets in the office sector. The company just announced it’s purchasing an office building in New York City for $2.1 billion, the priciest sale of a single U.S. office building since the start of the pandemic and one of the most expensive in U.S. history, according to Real Capital Analytics.

“Fears of the office building’s demise look overblown,” The Wall Street Journal reports. Even as the COVID-19 delta variant spreads, companies are showing renewed interest in returning to the office one day. They’re making plans for their return, too.

They’re being drawn to lower office rents and higher vacancy rates. In Manhattan, office asking rents have dropped to 2017 levels. That’s prompted August leasing activity to more than double when compared to the previous month in Midtown, The Wall Street Journal reports.

The higher demand for office buildings comes at a time when many companies have embraced remote work. Google has allowed its employees to work from home since the spring of 2020. The company has recently delayed its return to the office until January 2022.

“But the Manhattan office purchase underscores how the company views office space as an important part of its long-term strategy,” The Wall Street Journal reports. Google’s $2.1 billion purchase is for a 1.3 million-square-foot property on the waterfront of Manhattan’s West Side.

Google, Facebook Inc., Apple Inc., Amazon, and other tech companies have become some of the largest renters and buyers of office space across the country. They’re taking advantage of lower office building prices.

“Even if they have 20% of their workforce working remotely, business is just growing so fast that the other 80% still needs a place to go,” Brian Kingston, chief executive of Brookfield Property Partners, told The Wall Street Journal.

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How will commercial real estate needs change in the next five to 10 years? How has the COVID-19 pandemic accelerated the change? And what’s the implication for cities? Those questions were top of mind as the National Association of REALTORS®’ inaugural C5 Summit(link is external), a commercial real estate conference, kicked off Monday in New York.

Cities have a bright future, said Greg Lindsay, a senior fellow and director of applied research at the New Cities Foundation(link is external) and Monday’s opening speaker, but the way residents live and work will undergo a radical transformation.

People take for granted that in the not-too-distant future, we’ll all be accepting deliveries from and riding around in autonomous vehicles. But what about autonomous buildings, which are essentially machines where goods, services, and amenities automatically come to you? That’s the future that Lindsay asked C5 attendees to think about. Research shows “Americans are ready for extreme automation,” Lindsay said.

To meet the demand, planners and developers are deconstructing spaces and rethinking them to combine housing, retail, industrial, office, and recreation. The vision for autonomous buildings includes these ideas:

• Food can be dispatched from nearby centralized kitchens.
• Retail and grocery delivery can deploy from micro-warehouses.
• Residents can eliminate their daily commute through companies’ adoption of cloud solutions, flexible workspaces, and coworking.

Retailers and developers are already putting such ideas into action, Lindsay said. He pointed to Hub 121(link is external) in fast-growing McKinney, Texas, as a development that turns traditional city planning on its head. Rather than restaurants and amenities springing up to serve area office workers, the developers started with multiple outdoor beer gardens and restaurants, surrounding them with flexible workspaces, Lindsay said.

Buildings that can integrate technology and adapt to consumers’ and companies’ changing needs will succeed. “He who controls the app and the delivery controls the experience,” Lindsay said.

Amazon Fresh, for example, opened its first grocery store in Woodland Hills, Calif., and quickly began using delivery data to change the store layout in real time. Lindsay said the company is bringing to life the concept of the “15-minute neighborhood”—a term coined by University of Paris Professor Carlos Moreno to indicate areas where residents can mostly bike, walk, work, and meet all their needs within a 15-minute radius. Moreno, who serves as a special envoy for smart cities to Paris Mayor Anne Hidalgo, envisioned the concept as a way of reducing cities’ carbon footprint while improving residents’ quality of life. He has said he draws inspiration from the work of Jane Jacobs, author of 1961 classic “The Death and Life of Great American Cities.” Jacobs famously fought urban planning efforts of the 1950s and ’60s that facilitated the growth of car-dependent, suburban living.

Bustling Times Square, where the C5 conference is being held through Wednesday, served as the perfect backdrop for Lindsay’s C5 Summit remarks.

While the pandemic proved that office workers aren’t place-dependent, “superstar cities have retained their vitality,” Lindsay told C5 attendees. “Urban cores are stronger than ever, even if the real estate types within them are changing.”

To thrive, he said, cities need to rethink the public realm, focusing on how to beautify it, activate it, and turn it into something that’s more useful. “We can no longer think of cities as places where we stack people.

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If commercial real estate lags behind residential in adoption of technology, it’s not for lack of investment in the sector. In the first half of 2021, equity and debt investment in U.S. proptech totaled $8.5 billion(link is external), surpassing the total amount of capital invested in 2020, according to GCA, an adviser in the proptech market.

“The biggest challenge we face is [lack of] data sharing,” said Deena Zimmerman, vice president at SVN Chicago Commercial, during a proptech panel at the National Association of REALTORS® C5 Summit(link is external) Monday. “In this business, people still keep information close to the vest. Landlords will say to me, please don’t tell CoStar what we leased this space for. People need to realize, when we share data, it helps all of us.”

Zimmerman is not only a sharer but a zealous advocate for technology. While her company subscribes to CoStar, she said she’s also a fan of Crexi(link is external), a commercial listing platform that offers a discount to NAR members, and REALTORS® Property Resource(link is external), where commercial practitioners can research properties and market areas and find deep data on more than 1 million active commercial listings and 55 million off-market properties. There’s no cost for NAR members to use RPR. It’s a benefit of membership. She also uses ArcGIS from ESRI and SitesUSA to help tenants do site selection.

Having access to such tools routinely help Zimmerman beat out larger real estate companies in her tenant rep business, she told the C5 Summit audience. In one instance, adding an RPR trade market report to a proposal led to an hour-long discussion with a potential client. No other broker had offered near that depth of information, she said. She won the business and earned a sizeable commission.

Other panelists echoed Zimmerman’s comments and offered reassurance to brokers nervous about taking the plunge into new, potentially disruptive technologies. “Brokers are here to stay, and brokers are essential to the transaction,” said moderator Ashkan Zandieh, entrepreneur-in-residence for NAR REACH(link is external) Commercial.

“New technology has leveled the playing field,” said Andrew Flint, co-founder of Occupier(link is external), a lease-management solution and 2020 REACH Commercial company. “I spent a lot of time at JLL, where we had access to platforms not available to smaller firms. Today, if you’re a five-person team, you can be up and running with this stuff within two weeks.”

Tyler Thompson, vice president of Second Century Ventures(link is external), said the pandemic has helped speed up the adoption of technologies. “The best brokerage teams out there are saying, ‘How can I leverage this stuff to boost my team?’” he said. But bringing transaction management to commercial real estate remains a challenge. “It’s a bigger problem to tackle in commercial [compared with residential] because every deal is different.” What every commercial broker should be thinking about is the customer experience they’re providing compared with experiences consumers have in other industries, Thompson said. “On the commercial side, there’s a lot of work to be done.”

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Reprinted with permission