Growth expected to slow for commercial real estate

Chief executive officer (CEO) of Victoria Mutual Property Services, Michael Neita has projected a slowdown in the growth of commercial real estate in Jamaica as uncertainty lingers from the ongoing pandemic.

Some commercial properties have taken a heavy hit, when compared to the other subsectors, as more people stay home due to COVID-19 containment measures.

Speaking on Taking Stock with Kalilah Reynolds, Neita said the pandemic will change how people work permanently as more companies seek to leverage the new remote work capabilities.

He said this will change the pace at which commercial spaces will pop up in the country. However, at the same time, he does not see the segment declining as prices have held steady during the pandemic.

He reasoned that rent prices have not fallen, with people still keeping their spaces and hedging their bets due to the limited supply of these spaces across the island. Additionally, in some instances, owners have afforded tenants rent breaks to safeguard occupancies. Moreover, he said any unused space due to employees working from home could still be used to allow social distancing for customers.

“Technically there hasn’t been a fall in demand, commercial spaces are almost full across the country, the vacancy rates are not that high. It’s just that the occupants choose how to work so they might not have as many staff members there but they do continue to pay the rent or continue to own the properties. It will slow the growth but I don’t think it will cause a decline,” he said.

Neita said he doesn’t expect investors to start considering commercial properties as declining investment assets. He added that they are more likely to wait out the down period to see it through to recovery.

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“So in terms of new construction it might cause investors to slow the investment in commercial real estate but the pandemic will be behind us and life will go on. The way people work will change but there’ll still be a demand for space going forward so there’ll be a slowing but not a regression,” he reiterated. 

Industrial real estate to drive growth

Neita said he’s, however, expecting a further fall-off in the retail real estate market as more tenants feel the pressures of the pandemic over the next few months. He said industrial real estate will be the driver of growth for the overall sector.

CEO of Kingston Properties Kevin Richards also agreed that the industrial real estate scene has positioned itself to grow over the short and medium terms as e-commerce trading grows locally. He said as more people stay home and shop at overseas stores online, the demand for warehouse and distribution space will increase.

Richards said the ‘mixed use space’ will also attract more demand as that allows for a more hybrid model featuring space for storage as well as offices.

He said teams are now looking at how those sectors can be targeted in order to maximise input and capitalise on the demand.

“One of the key things that people are looking at is how efficiently they use space and also what their carbon footprint is with those spaces so you’re going to see people looking for more sustainability in the buildings they occupy, how much are they conserving on energy, are they using renewables in those building and certain things like free flow of fresh air of a building is going to become more critical ,” he said.

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“You have to think about how you’re going to configure a space you have now or any space you’re looking at; how is that going to meet those needs for what the future portends,” he added. 

Vaccination impact

Richards said while it’s been a ‘mixed bag’ in terms of the performance across the sector, some down segments, including retail and commercial, are about to make a turnaround as vaccination programmes enter new phases and global restrictions ease.

“That is causing a shift back for some people in retail and office space,” he said.

Meanwhile, Richards has projected that new commercial projects will come on stream over the next few years to satisfy the current demand.

He too believes the sector remains a viable investment, especially as entities like business process outsourcing (BPO) companies seek additional spaces to employ the same number of staff but within health and safety protocols.

He added that there’s also an opportunity for investors to turn these spaces into other ventures as evidenced by a growing trend within some modern societies.

“So you’ll see a space that was being used for an office being retrofitted for a condo or life sciences or medical facilities so there are opportunities in terms of some of the existing buildings around as well as for new build,” he said. 

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