2019 Commercial Real Estate Trends
Cities like Chicago continued to see skylines and neighborhood retail establishments morph and change, as commercial development projects sprouted in earnest throughout 2018. Greg Warsek, Illinois Market Manager for Commercial Real Estate for Associated Bank, expects to see that continue in 2019.
Loan demand continues to be high.
“I think that coming into the year (2018), I think there were some concerns about the Fed’s desire to increase rates …,” Warsek said. “The reality is, despite those increases, real estate developers kept chugging along. It did not slow anything down. It was a very strong year again from a loan demand perspective. There were a lot of new projects going on, a lot of properties changing hands.”
And, Warsek likes to keep history in perspective, noting that interest rates are still on the lower end, generally speaking.
“Short-term rates were at historical lows, and I think the savvy real estate developers understood that 25, 50, 75 basis point increase is still, at the end of the day, that’s a good rate on the loans they’re paying,” Warsek said.
Brick and mortar is not going away, just evolving.
Retail bankruptcies like Sears and Toys ‘R Us made headlines in 2018, leading some to predict the death of brick and mortar. Not so, according to Warsek.
“The reality is that the retail business is changing,” Warsek said. “Every year there’s bankruptcies in good times and bad. It’s (about) models that have run their course and people go out of business, but there’s new ones that take their place.”
Disruption to the market? It can be a good thing, says Warsek. “I think the disruption(s) … create opportunities.”
“Retail is going to be different in the future, and so the savvy retail developers that we work with, they look at this as opportunity,” Warsek said. “They don’t get too concerned; and frankly that’s our position as well. We’re seeing it as an opportunity to finance new projects, reposition projects. And there’s a lot of interesting ones out there that we’re looking at.”
Brick and mortar plus e-commerce equals magic formula?
Warsek predicts the future is an exciting one as more retail establishments figure out a path forward that accommodates both an online and an in-person store presence.
“The retail industry (is) trying to figure out that equilibrium, trying to figure out their omni-channel delivery in terms of their brick and mortar with their e-commerce component,” Warsek said. “I don’t think it’s one or the other. I think there’s some sort of complement. And I think a lot of the successful retailers … are trying to figure out that balance right now.
“A lot of news in ‘17 and ‘18 was ‘Oh my gosh, the sky is falling. E-commerce is coming and all retail is going to be gone.’” Obviously, (that was) overblown by the press. There were closures, there were businesses that were impacted by ecommerce to some extent, but I think the savvy retailers in ‘19 will continue to find that equilibrium, if you will.“
One example in Wisconsin of a commercial development project reimagining a space is the former Sears store in Brookfield, near Milwaukee.
“They’re putting up a theater, whirly ball and a bunch of restaurants … creating an entertainment venue and a big draw really,” Warsek said. “It’s just repositioning a great asset with phenomenal demographics around it.”