Welcome to the deep dive today. We’re going to take a deep dive into, um, commercial real estate. Oh, fun. It is fun. And it’s, uh, it’s interesting. It’s always changing. Yeah, definitely. And we’ve got a stack of articles here from CoStar News and CoStar Analytics. They’re really the experts on this stuff.

Yeah, they are. So we’re going to go through these and see what’s, what’s happening out there in the world of commercial real estate. So some trends, trends. Yeah. I love trends. Yeah, it’s all about the trends. Exactly. Ugh. So, let’s jump right in. The first thing I wanted to talk about was, um, Borrowing trends.

The third quarter of 2024 saw a surge in borrowing 44 percent increase over the previous quarter for commercial real estate. Wow, that’s a lot. Yeah, it is a lot. So I’m kind of curious what what was driving that? Well, one thing to consider is, um, Interest rates. And during the third quarter, the interest rate on what’s called the 10 year treasury really dropped significantly.

It actually hit 3. 72 percent in September. So how does that, like, how does a government bond rate impact commercial real estate? Right, so that actually acts as kind of a baseline for interest rates across the whole economy. So when that rate falls, mortgage rates tend to follow suit. And then suddenly, Borrowing money becomes a lot more attractive.

Oh, okay, so it’s like a domino effect then. Yeah. Lower government bond rates leads to lower mortgage rates. Buyers want to jump in and refinance or take out new loans. Exactly, and that’s exactly what we saw happen in the third quarter. Buyers and property owners wanted to lock in those lower rates before they potentially 10 year treasury yields, they climbed back up to 4.

51 percent since mid September. Right. So is that borrowing frenzy over? That is a great question, and it really shows how dynamic the real estate market is. You know, if those yields continue to rise, we could definitely see that borrowing slow down. Those lower rates are already starting to become a thing of the past.

So for anybody listening who might be thinking about investing in commercial property right now, what should they be thinking about? Well, I would definitely say pay close attention to interest rates. You know, the window for those super low rates, that could be closing. We also might start to see lenders and borrowers being more creative, um, with their financing to kind of adjust to this new environment.

That’s interesting. Yeah. It’s going to be interesting to see what happens. Okay. Well, let’s move on from this big picture of interest rates and, um, zoom in on a specific market that caught my eye, Dallas, Fort Worth. It says here that commercial property sales are up 12 percent year over year, but it looks like the real story is in one particular sector.

Industrial properties. Yeah. Whose sales are absolute booming in Dallas, up 53 percent compared to earlier this year. 53%, that’s huge. So, I mean, everyone talks about location, location, location in real estate. Yeah, right. But what else is going on there? Is it just location? Well, location is a big factor. You know, Dallas has a strategic location.

Great transportation network is becoming a prime hub for distribution. But there’s also kind of this bigger trend going on, uh, you know, changes we’re seeing in global supply chains. The pandemic really exposed weaknesses in those long, complex global supply chains. Yeah. So companies are rethinking their strategies.

They want to shorten their chains, bring production closer to their customers, and that means they need more warehouse space and they need it closer to where people actually live. Okay. Dallas Fort Worth is perfectly positioned for that. So it’s not just a physical location, it’s about positioning yourself within these evolving supply chains.

Exactly. And we’re seeing that in other places around the country too, you know, other logistics hubs. So anybody listening who’s thinking about, I don’t know, relocating or starting a business, Dallas might be a good spot to look into. Definitely. Especially if you’re in an industry that relies on, you know, fast and efficient distribution networks, Dallas is a powerhouse for that.

Awesome. Okay, let’s move on. This one, this one’s a little bit of a surprise. We all know the office market has been struggling, vacancy rates are high, lots of empty buildings, but one landlord in Plano, Texas is trying a pretty unique approach to attract tenants. What’s that? Pickleball. Pickleball. Wow. I know, right?

So this landlord is adding pickleball courts and a bunch of outdoor amenities to a vacant office campus. Like, is it a gimmick? Are they on to something? Well, you know, I think it really speaks to the changing priorities of office tenants. What people want is changing. It’s not just about square footage or fancy address anymore.

Companies are realizing they need to create a better experience, offer something more, a sense of community. So it’s less about cubicles and more about creating a workplace that people actually want to be. Exactly. And if that includes pickleball, then so be it. I love it. Yeah. But what does this mean for the future of work?

I mean, are traditional offices just going to become obsolete? That’s a big question. And honestly, I don’t think anyone really knows the answer yet. Yeah. But I think, you know, this focus on amenities and experience, that could really change the office as we know it. It’s a trend to keep an eye on. Okay.

Let’s move on to retail. Okay. Despite some, you know, some challenges, retail real estate is showing some signs of resilience. In fact, in South Florida, retail properties are actually gaining value faster than other types of real estate, even apartments, which are usually pretty hot. Yeah, that’s a great point.

It really goes to show that real estate is all about location. National trends only tell part of the story. So what’s making South Florida’s retail market so strong then? Well, a few things. They’ve got a booming tourism industry, a growing population, and, compared to other markets, a relatively limited supply of retail space.

You can’t forget about the weather, those warm, sunny winters. Right, people want to be there. Yeah, people are out and about spending money. Yeah. That translates into higher rents, higher property values for retail owners, but it’s not just about location. Retailers are also getting creative and adapting to changing consumer preferences.

And there’s some really interesting examples of that. Like what? Like the story about Arco, the convenience store chain. Oh yeah. They’re planning a major expansion, gonna open over 1, 400 new stores, renovate a lot of existing ones. And the big focus is food sales. Really? So they’re going beyond just like gas and snacks.

Yeah, they want to compete with fast food restaurants, offer quick and convenient meal options. Oh, interesting. So they’re tapping into that growing demand for like, grab and go food options. I think it’s a smart strategy. Yeah, especially as people get busier and busier, it just makes sense to have those options.

Exactly. Okay, before we move on, I want to squeeze in one more trend here. The national multifamily market, you know, apartment buildings. The data shows that the vacancy rate might have finally peaked, reached 7. 9 percent in the third quarter. Yeah, that’s right. After a pretty steep climb since 2021, it seems like it’s leveling off.

Okay, but you mentioned earlier that you know real estate is all about location and national trends don’t tell the whole story, so what’s happening on the like a regional level. Well, there are some pretty significant differences. Oh, okay. The Sun Belt, for example, is seeing disproportionately high vacancy rates.

Austin actually leads the pack with a vacancy rate of 15. 1%. Wow, that’s more than double the national average. It is, yeah. What’s going on there? You know, we can actually connect this back to something we talked about earlier, that migration trend to Texas. All those people moving from California and other states, they’re putting pressure on the housing markets.

Right. Increased demand leads to higher rents, and if there’s not enough apartments, then you get higher vacancy rates. Yeah, and that’s a big part of the story here. Some Sunbelt markets are actually seeing a slowdown in multifamily construction. Oh, wow. Which just makes the problem worse. So is this trend sustainable?

I mean, are we heading for a correction in some of these sunbelt markets? Hmm. That’s a great question. And it’s something that analysts are definitely watching very closely. All right. We’re going to take a pause here and come back to explore those questions and a lot more in part two. Welcome back to the Deep Dive.

You know, before the break, we were talking about those regional differences in multifamily market, and that got me thinking about the long term effects these, like, migration patterns can have. Yeah, it’s like a ripple effect. Exactly. It makes you wonder, like, what’s the ripple effect going to be from those hurricanes?

Oh yeah, especially since they hit some of the most popular areas on the East Coast. Definitely those hurricanes, they’re really impacted businesses, especially those that rely on tourism and entertainment. Yeah, even Disney wasn’t immune. Oh wow, they’re not exactly a small operation. What kind of impact are we talking about here?

Well, Disney estimates that, you know, all the closures and event cancellations from those East Coast hurricanes are going to cost them about 150 million in the first quarter of 2025. 150 million. Wow. It’s a big number. That’s huge. It makes you think about, you know, how important it is to have a plan. for dealing with, like, unexpected events.

Right. We talk a lot about the need for resilience and adaptation in business, but a lot of times the focus is on, you know, like, physical infrastructure, making sure buildings can withstand storms. Right. But it’s also really important to think about that resilience in terms of your business model, you know?

Your risk management strategies. How can you adapt to these kinds of disruptions and minimize the impact on your business? Okay, well let’s shift gears now and talk about a trend that seems to be Bucking the trend in a lot of ways. Okay. The power of physical locations. I mean, in an age where so much of our lives has moved online, it’s interesting to see companies actually doubling down on brick and mortar stores.

It is. You know, in a world that’s becoming increasingly digital, we’re seeing a renewed interest in physical spaces. Yeah. Almost like a pendulum swing. So one example that really stood out to me was, um, PNC Bank. Okay. They’re planning to double their branch openings over the next five years. Wow, which seems kind of counterintuitive.

Yeah, it does but you know I think it shows that even though we have all these digital options people still want those physical locations So what’s driving that demand? You know, I think for a lot of people especially when it comes to complex financial matters There’s still that desire for personal touch that face to face interaction.

There’s just a level of trust and a sense of security That’s hard to replicate online It’s like that old saying, sometimes you just need to talk to a real person. Exactly, and PNC is not the only one. Meta, Facebook’s parent company, is also experimenting with physical spaces. Oh, really? Yeah, but they’re taking a slightly different approach.

Oh, okay. They’ve opened a couple of pop up stores in a few cities. Okay. But their focus is less on selling products and more on creating these experiential retail spaces. So what are they doing? Well, they’re showcasing their VR and AI technology, giving people a chance to try it out, experience it firsthand.

So it’s less about traditional retail and more about, like, building brand awareness and generating excitement for meta. Right. They’re using these physical spaces to bridge the gap between the virtual and the real world. I see. Giving people a taste of the metaverse, I guess you could say. Yeah, it’s a smart strategy.

Makes me wonder if that’s the It’s like the future of retail, finding creative ways to blend online and offline to create a more, I don’t know, like a holistic brand experience. I think you’re right. It’s not about online versus offline anymore. It’s about finding the right balance, you know, the synergy between the two.

Consumers want options. They want convenience. They want to shop online in stores or a mix of both. And the retailers that can meet those needs, they’re the ones that will succeed. Makes sense. Yeah. Okay, before we move on, I want to circle back to something we touched on earlier. Um, the rise of convenience stores as, like, food destinations.

Yes. That story of, uh, Arco’s expansion plans. I was blown away by that. Over 1, 400 new stores. With a focus on food sales. Yeah, it’s a bold move, but I think it’s a smart one. They’re really capitalizing on the shift in how people are eating. You know, people are busy. They’re looking for quick, affordable meal options.

Yeah, and convenience stores are perfectly positioned for that. They’re already everywhere. They’re open all the time. They have a built in customer base. Right. It’s a classic example of adapting to changing consumer needs. Instead of just selling gas and snacks, they’re becoming destinations for meals.

We’re going to pause there for now and come back to wrap things up and explore what some of these trends might mean for the future. Welcome back to the Deep Dive. We’ve talked about a lot today, but before we wrap things up, there’s one more trend I wanted to make sure we discuss. Migration. It’s really changing, not just, you know, commercial real estate, but entire regions.

Yeah. And. Um, the article’s really highlighted what’s happening in Texas. Right, especially all the people and businesses moving there from California. Yeah, it’s like every day I hear about another company packing up and heading to the Lone Star State. What, what is it about Texas? And what’s it doing to commercial real estate there?

Look, Texas has a lot to offer businesses, you know, it’s a very business friendly environment, lower taxes, lower cost of living compared to a lot of places, especially California. Yeah. And for individuals, it’s, you know, often a similar appeal, especially that lower cost of living and all those people and businesses, they need places to be, right?

Yeah, driving up demand for commercial real estate, especially in cities like Austin, Dallas, San Antonio. But we talked earlier about how, you know, rapid growth isn’t always a good thing. It’s true. Can create challenges, especially with housing and infrastructure. Exactly. And, you know, we see that in Austin, those high vacancy rates we talked about earlier that suggest that, you know, the supply of housing just isn’t keeping up with all the new people moving there.

And as long as people keep moving to Texas, that pressure on Housing and commercial real estate is just going to keep building. Most likely, yeah. It’s pretty amazing how, like, a demographic shift, like this, the wave of migration, can impact so much. Yeah, the ripple effect. Really makes you think about, like, what’s the future going to look like for these places?

It does. How are they going to keep up with the growth? Yeah. You know? Accommodate all these people, but still maintain a good quality of life. That’s the question, isn’t it? Yeah, you know, it’s something that cities across the Sun Belt are facing. Right. Speaking of the future, there’s one more trend I want to touch on before we wrap up.

This one is a little bit out there. Okay. The metaverse. It seems like science fiction, but people are talking about it. Investing in it. It’s true. How does it connect to commercial real estate? That’s a good question. It does seem like a world apart from office buildings and shopping malls. Right. But there are some interesting connections starting to emerge.

Like we talked about Meta, Facebook’s parent company. Yeah. Opening those pop up stores to showcase VR and AI. Right. They weren’t really selling anything. Right. Just trying to get people excited about the Metaverse. That’s right. Trying to build a bridge between the virtual and the physical. Give people a taste of what it’s like.

What the Metaverse could be, what it has to offer, you know, beyond just games and entertainment. So these pop up stores are almost like a, like a gateway to the Metaverse. That’s a good way to put it. Make it feel a little less, I don’t know, abstract? Yeah. And, you know, as more people get used to VR and AR technology, Yeah.

the lines between the virtual and physical worlds are just gonna get blurrier. It’s kind of mind blowing to think about what we could do. Yeah, it is. Like, imagine attending a conference. in a virtual office tower, or shopping for furniture in a digitally rendered showroom. I mean, the possibilities are endless.

That’s what’s so exciting about it, right? It’s a blank canvas. Yeah. And it’s still early. But I think we’re just starting to explore what it can do. So even though people aren’t, you know, buying virtual real estate just yet. Right. It’s definitely something to watch. Absolutely. I agree. You know, just like all the trends we’ve talked about today, the commercial real estate landscape is constantly evolving.

You got to be able to adapt, to innovate, to embrace new technologies if you want to succeed in this world. That’s a great point to end on, I think. Yeah. Wow. We covered a lot today. Everything from pickleball to the metaverse. We did. Surging borrowing costs, resilient retail. It’s clear that there’s The world of commercial real estate is dynamic.

Yeah, lots going on. Full of surprises. Always changing. Exactly. Well, thanks for joining us on this deep dive into the world of commercial real estate. We hope you learned something new and maybe got you thinking about the trends that are shaping the world around us. Until next time, stay curious.