THE NEW YEAR IS ALWAYS AN APPROPRIATE TIME TO REFLECT AND PROJECT WHAT THE REAL ESTATE MARKETS WILL DO IN 2023—THAT IS, IF WE HAVE THE NUMBERS CONFIRMING THE TRENDLINES IN EACH SECTOR OF THE MARKET. We represent three national brokerage houses as their in-state broker, and have access to webinars and other data that looks at national trends. A recent 90 minute webinar by Marcus Millichap began with the comments by an economist from Moody’s focusing on the “recession versus no recession” debate that is now going on in corporate America. Three sectors were discussed at some length: The commercial office market, the multi-family sector, and the self-storage sector.
NATIONWIDE, THE OFFICE MARKET IS NOW CALLED THE “HYBRID WORK ENVIRONMENT,” WHICH IS A COMBINATION OF WORKERS WHO HAVE RETURNED TO BRICK AND MORTAR OFFICES, AND THOSE WHO REMAIN WORKING REMOTELY FROM HOME.
This situation is a result of the pandemic, for which a definitive solution remains elusive. While the jury is still out on any wholesale return to the office environment, it is clear that some form of Hybrid work environment is here to stay. However, the need for collaboration among employees in some industries will require significant numbers of workers to return to the office, while many tech employees, and those overseeing independent projects are likely to stay remote. Meanwhile, there is general concensus that nationwide vacancy rates for office range between 15 to 18 percent, with the higher number reflecting urban vacancy rates. There are exceptions to this. Urban offices of higher quality for example, that encourage collaborative meeting spaces for employees to use are enjoying higher occupancies. In downtown Juneau, current office vacancy is in the range of 20,000 square feet for B-rated offices.
ANOTHER SECTOR NOMINATED FOR BIG CHANGES IS MULTI-FAMILY IN SECONDARY AND TERTIARY MARKETS THAT HAVE BEEN OVERLOOKED AS BIG CITY “24/7” MARKETS HAVE DOMINATED THIS SECTOR FOR YEARS. Smaller secondary and tertiary markets are seeing growth now as older, urban inventory in locations where services like restaurants have suffered have less appeal to younger workers. Younger workers have recently sought to consider less urban markets for rentals, and markets that offer them more leisure opportunities and living arrangements at lower cost. The “warehouse” market in Juneau, which consists of so called “boat condos” over the past ten years, continues to be strong, because it addresses the need for both warehouse spaces and new housing at the same time. Larger and single-tenant warehouses of 6,000 square feet or more are a rare commodity. The industrial land inventory on which warehouses have traditionally been built here, is now non-existent.
BACK TO THE RECESSION OR NO RECESSION QUESTION, HEALTHY LABOR MARKETS HAVE TRADITIONALLY FORETOLD THE UNDERLYING STRENGTH AND GROWTH OF COMMERCIAL REAL ESTATE. Since the jury is still out on whether or not a recession will take place in 2023-2024, jobs growth is central to determining whether or not we will experience a recession. And the impact of the recent steep increases in interest rates is yet to have an impact on this question.
THE SELF STORAGE SECTOR IS PERFORMING ABOVE MOST OTHER SECTORS IN REAL ESTATE FOR THE THIRD YEAR IN A ROW. This is because of household relocations and consolidations stemming from COVID and personal relocation being the second most common reason to rent a storage unit. Millenials are aging and growing their households, which is shifting lifestyle preferences toward larger dwellings in older suburbs. In Juneau, we see extremely high occupancy rates in storage projects—a pattern which is also reflected in Sitka and Ketchikan. The recent announcement that U-Haul Corporate has purchased the WalMart property indicates long-term confidence that this type of investment is attractive to major players in the storage business, even in Southeast Alaska.
IN JUNEAU, SINCE OUR FOOTPRINT ON THE REGIONAL ECONOMY IS RELATIVELY SMALL, WE MUST FOCUS ON LOCAL TRENDS THAT CAN HELP US PROJECT WHAT THE NEAR TERM OUTLOOK WILL BE. We see a continuing and increasing demand for more housing to be built. However, due to the ever- increasing costs of construction, freight, and labor, we see insufficient demand for new office space to be built in the near term. Retail will continue to occupy spaces in area malls and other buildings repurposed for retail and other uses.