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Real Estate Insights (and Surprises!) from Q1 2021

As we began to understand what economic recovery post COVID-19 looks like, our real estate attorneys share their observations from the first quarter of 2021.

There is a general sense of optimism about the future. Progress and growth are happening across multiple sectors:

  • Increased interest in workforce housing projects. Several New England states are, or considering, offering tax, zoning and other incentives for these types of projects.
  • Warehousing, Distribution and Data Centers remain in high demand with a high volume of acquisitions nationwide.
  • Continued deal flow on renewable energy projects. With new support from a new administration in Washington for these types of projects, there is a high volume of deals to construct new solar and wind projects.

Office Space:

  • Office tenants are evaluating their space needs in light of what they expect their post pandemic space needs to be.  This is still a moving target.
  • Approximately 2.9 million square feet of sublease space is currently on the market in Boston.
  • Most prospective subtenants are looking for shorter term commitments, plug and play space, discounts from contract base rents and other concessions.
  • Class A asking rents have decreased by 4% on average since the start of the pandemic. Class B rents have decreased by 8%.
  • Many companies which would ordinarily be looking at downtown spaces are also considering suburban spaces for ease of parking, open space, and other desired new priority features.

Retail:

In the first quarter of 2021 there have already been more retail stores that have been opened than have been shuttered. So far, 3,199 stores have opened compared to 2,248 that have closed. According to Coresight Research, this positive pace will out-perform similar activities in 2018 and also in 2019. Experts attribute this “retail ebullience” to a variety of factors including the jolt in consumer confidence due to the receipts of the stimulus checks, and also the vaccine roll-outs.

  • Mall owners who are repositioning their malls for the future are still betting heavily on in-person, experiential offerings.
  • Drive thru’s and curbside pick-up remain popular in shopping centers.
  • More Tenants are seeking stand-alone outparcel and pad deals.
  • Start to finish closing times for closing real estate dispositions continue to accelerate, with most due diligence periods being limited by national sellers to thirty days or less and a short time to closing following.
  • We have noticed that recent court decisions in the Northeast regarding force majeure lease provisions have been mixed. The decisions are no longer dominated by opinions favoring landlords. Even in instances where the provisions contain clear carve-outs obligating the tenant to continue to pay rent in spite of the force majeure event, recent cases in New York, and at least one case in Massachusetts, are excusing tenants’ rental performances during the COVID pandemic based on the doctrines of impossibility and frustration of purpose.
  • The bankruptcy tsunami that we thought would rock the retail world at the onset of the Pandemic in 2020 turned out to be a mirage. Granted there were a total of 35 retail chains (with 25 or more stores) who filed for Chapter11 in 2020. However, during the fourth quarter of 2020, only six retail chains actually filed for Chapter 11. By the first quarter of 2021, only two such retail chains so far have filed for Chapter 11.
  • Pandemic-fueled “distressed” real estate sales have not materialized as many expected.

 

We are here to help answer specific questions and offer advice on your options. Feel free to contact any member of our Real Estate Group.

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Thanks to Cushman & Wakefield for some of the statistics on the sublease market in downtown Boston.