The founder of Equity Group Investments shared predictions for the recovery of commercial real estate
Taken from TRD
NEW YORK- Billionaire investor Sam Zell has a strong prediction for those betting on a retail market recovery.
Yesterday in an interview for CNBC's Squawk Box, the founder and president of Equity Group Investments said he believes that demand for office space will recover from the pandemic before retail space.
“Everything between the upscale mall and the corner grocery store… [there’s] serious doubt about its viability,” Zell said. “I think retail is much more of a falling knife than office, and I think office is likely to recover much faster than retail.”.
Zell said the office market rebound would depend on how companies choose to hire employees for in-person work, as well as integrating hybrid work plans.
“Ultimately, the amount of time people spend in the office will be very much related to the demands on their time,” Zell said on CNBC.
While Zell believes the office market will recover before the retail market, he said the sector's near future is not without its challenges.
“Obsolescence is a major factor in the office market, and I think it will make some assets unsellable without significant investment,” Zell told CNBC, adding that his investment fund has been avoiding the office market.
Zell has repeatedly likened retail to a falling knife in recent years, even writing off the space before pandemic-era lockdowns trapped shoppers at home and fueled the rise of e-commerce.
The recovery of Manhattan's retail and office markets offers a particularly clear example of the disparity between the different growth of the two sectors in the wake of the pandemic.
The municipality's retail leasing velocity increased in the fourth quarter, according to CBRE data. The cumulative four-quarter rolling lease velocity rose to approximately 1.86 million square feet, up 17 percent from the third quarter but still 14 percent below the previous year.
Meanwhile, Manhattan’s office market showed signs of recovery throughout the year. In November, tenants signed more than 3 million square feet of leases, the first month to surpass that mark since January 2020, according to Colliers’ monthly market snapshot. Lease volume for the month was up 14.8 percent from October and more than four times the previous year.
