Opinion: What’s up with commercial real estate market?

Commercial real estate prices appear to be on the mend post-pandemic.

According to a published paper by the International Monetary Fund – titled “Commercial Real Estate Prices During COVID-19: What is Driving the Divergence?” – an industry recovery is underway worldwide. Of course, the leveling of reportedly sharp price drops varies greatly by regions and industry segments. But in general, the report says, “fiscal support and easy financial conditions maintained by central banks have helped to cushion the shock.”

Let’s take a look at the latest commercial real estate sales deals in the Springfield market using data by CoStar Group Inc. (Nasdaq: CSGP). The Washington, D.C.-based firm tracks commercial real estate internationally, and it has a presence in the Springfield market. Each quarter, CoStar releases Power Broker Awards in several categories, including the top sales deals.

Reviewing the past six quarters listed by CoStar, Springfield seems to be on that trend but is a little hard to pinpoint. And it’s worth noting, the data is limited and based only upon what brokers submit in the market.

In 2021, the largest sale listed is $7.58 million for a multifamily apartment complex in Greene County. That was in Q2, while the highest in the following two quarters were in the $4.5 million range – both retail properties.

Then a booming deal hit the market at the start of 2022. CoStar singled out a $25.25 million sale of an office building in southwest Springfield, with a thumbnail picture of the Chase call center at Campbell Avenue and Republic Road. The next quarter only lists a $5.4 million property sale, showing a picture of the Byrider auto dealership on Glenstone Avenue. And Q3 popped up with an $8.1 million sale leading the deals. It was the At Home furnishings store on South Campbell, adjacent to, but separate from, the Kickapoo Corners shopping center.

So, here’s the average each quarter of the leading deals identified by CoStar:

2021

Q2: $7.58 million (only one property value disclosed)

Q3: $3.36 million

Q4: $3.85 million

2022

Q1: $11.1 million

Q2: $5.4 million (only one property value disclosed)

Q3: $4.73 million

That does seem to show a trend of recovery. But there are still headwinds.

“Structural changes in private behavior such as the trend toward teleworking and e-commerce have also had an impact on commercial property prices in some segments,” the IMF report concludes, noting the outlook from here will be influenced by a few key factors: the trajectory of the pandemic and macroeconomic recovery, financial markets and shifting demand for specific property types. “In an environment of tightening financial conditions and a slowdown in economic activity, continued vigilance is warranted on the part of financial supervisors to minimize financial stability risks stemming from potential adverse shocks to the sector.”

To round out this snapshot analysis, CoStar has a separate insight report that indicates leasing volumes at “neighborhood, community and strip centers” are back to pre-pandemic levels. So much so that CoStar says the average vacancy rates in those types of centers are at a 10-year low.

We’ve seen examples of this in the Springfield market, with openings of Chicken Salad Chick in the Fremont Center on East Battlefield Road, Heirloom Candle Bar in Rountree neighborhood’s commercial district and Kaiju Coffee at The Fairbanks community resource hub.

A final trend identified by CoStar where traditional shopping malls have lost value seems to shine a light on an anomaly with Springfield’s Battlefield Mall. The Simon Property Group Inc. (NYSE: SPG) mall is still attracting tenants, one of the latest being the Kendra Scott jewelry chain opening in the mall’s outdoor lifestyle area. Prior, we saw the Lululemon Athletica brand, Pizza Ranch restaurant, Selfie Vibes photo studio and the Doggy Style hot dog shop among those joining Battlefield Mall’s tenant list.

CoStar advises that property investors look to shopping centers anchored by grocery stores in order to outperform malls in the current retail environment.

Springfield Business Journal Editorial Vice President Eric Olson can be reached at eolson@sbj.net.