What is commercial real estate and what can it teach us about changes in the US?

#יםמהשבוי Barak Yaakovovitz #post2
Most of us associate in the context of real estate, the field of residential real estate,
But there is another field, commercial real estate.
The definition: a property used primarily for purposes related to business, providing work space or a residential property purchased for income generation with over 5 units (multi-family/portfolio).
The main types of commercial real estate are trade and retail, hotels and hospitality, industrial (warehouses, etc.), multi-family (apartment complexes over 5-6 units), land and properties such as hospitals, universities, etc.
What are the main differences between commercial real estate and residential real estate?
One of the differences is that the tenant who rents the property is usually a business or company.
One of the main elements in determining the property's value is according to the net operating income that the property generates (income - operating expenses = net operating income) and twice the multiplier/acceptable return in that market.
The leases are usually for 3-5 years and even 20 years in advance, compared to residential real estate where the lease is shorter, usually a year or a month.
Commercial real estate has experienced transformations in recent years mainly due to the Corona period, and the growth of the online retail sector in the US, therefore the sector adapts itself to the situation.
For example, many fashion stores have been affected by the growth of Amazon and other companies in the field of commerce, but they have adapted by addressing a different target audience, raising awareness of user experiences and customer service, and establishing commercial centers in strategic locations for the target audience (for example, a Latino audience that buys more physically instead of online), in addition, entrepreneurs are now turning more to developing mixed used centers that will serve several tenants, including residences, offices and communal areas, etc. and will help in the movement of additional customers to the complex, instead of building only on anchors (a tenant that brings traffic to the commercial complex, for example a supermarket)
In addition, businesses from different fields such as the Well Being field such as spas, healthy food, gyms, beauty salons replaced the chains that failed to adapt to the changing world in the retail field (called amazon proof in parlance).
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In addition, another field is changing before our eyes, illustrating the changes that are happening in the US
The commercial-industrial sector of the small/medium warehouses (FLEX INDUSTRIAL, SELF STORAGE AND SMALL BAY INDUSTRIAL)
In this section I will talk about the transformations that self storage has taught us over the past few years
Self storage provides space for individuals to rent and store their personal or business belongings. The storage space - also known as storage units - is usually rented on a month-to-month basis.
It is a kind of large warehouse that is divided into many small warehouses designed for self-storage (you will usually see them in the US in prime locations, and painted in ugly and striking colors like green and orange).
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Self-storage thrives in harsh conditions.
People in challenging situations move often, and some of those moves lead to more self-storage warehouse rentals.
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Storage companies often refer to four factors: reducing storage at home, death, frequent moves (for example due to work) and divorce. Of course, these are terrible situations, and none of us are happy about them. But they are the reality.
(Note that self-storage generally thrives even in a strong economy. People filling their Amazon and Walmart carts need excess storage—often indefinitely.)
The whole economy was awash with fear in March 2020. It was a big heartbreak for students when they were sent home in March. But this event led to surprising good news for self-storage operators. College students flooded self-storage facilities to store their belongings until the uncertain date of their return.
A second bonus came within the last year. With employees working effectively from home, thousands of companies have realized that they can maintain productivity and potentially reduce office expenses. Many Americans, faced with their own mortality, recognized their moment of freedom and pulled their future relocation dreams into the present.
We witnessed a massive relocation boom across the US. Many leave places like New York and Chicago for lakeside retreats or the mountains they've dreamed of retiring to someday.
There are many other issues involved, and these are beyond the scope of this post. But this relocation craze has certainly benefited the self-storage industry.
Note that this "displacement of office space" has also resulted in increased demand for storage as companies seek temporary storage for furniture and equipment. I predict that this "temporary" situation will become a long-term situation for many.
Unfortunately, Covid has also resulted in the sudden closure of businesses such as retail, bars, restaurants and event facilities. The result was a need to store furniture, equipment and goods.
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Another phenomenon is the transformation of large commercial spaces (called big boxes) into self-storage spaces, for example the giant Kmart chain which has shrunk to only three branches, and investors have turned some of their stores into self-storage spaces (by the way, construction and development of self-storage is relatively cheaper compared to retail).
I hope I managed to interest you a little in the macroeconomics of the field, tomorrow we will dive more into practice, how to name and locate commercial transactions and examples of transactions
Thank you all