On May 20, Cheri Bonawitz, CCIM, a Broker at Malone Commercial Brokers, was a commentator for the Maine Real Estate & Development Association’s (MEREDA’s) 2021 MEREDA Index. Cheri’s comments on the Commercial Sector follow Economist Charles Colgan’s analysis for 2020.
The MEREDA Index is a measure of real estate activity designed to track changes in Maine’s real estate markets. The Index is a composite of nine seasonally adjusted measures reflecting both new development and transactions involving existing properties and it covers both the commercial and residential markets statewide. The most recent edition covers the year 2020 and provides commentary on the Commercial, Residential, and Construction sectors. The MEREDA Index for 2020 is 113.3
THE COMMERCIAL COMPONENT: 108.2
[Charles Colgan Analysis] “2020 was not a good year for commercial real estate, marking a change from several years of stability or modest growth. The number of sales and leasing transactions was down 3.5% on an annual average basis compared with 2019, and the square footage of transactions declined by 29.3%. Lease rental rates on a square foot basis fell 2.5% but average sales prices per square foot increased by 5.7%.
The unique circumstances of 2020, with a mass exodus from offices in a shift to remote working along with the shutdowns for extended periods of a variety of retail goods and services establishments, were reflected in the commercial real estate market. Office lease transactions fell from 127 in 2019 to 102 in 2020, a 20% drop. Retail leasing also fell by 12%. But industrial transactions in 2020 grew significantly and returned to the same levels as in 2018. The effect of the ending of the pandemic in 2021 on the office and retail market will be one of the key issues for the commercial sector in the future.”
[Cheri Bonawitz, CCIM, Broker, Malone Commercial Brokers] “As we are all aware, 2020 was a year like no other. Throughout the pandemic the commercial real estate market was very active in certain sectors and suffered setbacks in others. The office market in Greater Portland had an overall vacancy factor at the end of 2020 very similar to the numbers at the end of 2019 (6.97% vs 6.34%). At the start of the pandemic, most of Maine was working from their often hastily prepared home offices. As the year wore on, we saw a number of workers begin to return to their offices, while a large faction of people continued to work from home. The impact on leasing of both large and small vacant office space has yet to be determined, but we are seeing some promising signs that there still is a desire to maintain a connection with the normal workplace. There were a number of significant office sales and office leases signed in 2020; including the office lease of Berry Dunn for 87,906 SF at 2211 Congress St.
In the retail market, a number of Old Port retailers have closed, but there are many others who managed to hang on throughout the pandemic and are hoping to rebound during 2021. The Maine Mall experienced a number of retail closures which may continue until people are more comfortable shopping in a mall environment. However, several of the larger vacancies were filled in 2020 by furniture retailers whose sales have increased dramatically during Covid. Covid dealt a hard blow to venues such as wedding businesses, concert halls, movies, gyms, and larger indoor spaces. Meanwhile, there were other retailers who benefited greatly from Covid, typically those that offered any type of home improvements. We saw that many restaurants were able to pivot to curbside or takeout service to offset some of their losses, while there was a boon for grocery stores, liquor stores, and retailers selling home and outdoor recreation items.
The industrial market remains strong with very low vacancy rates which continued throughout 2020. The legalization of cannabis growers and retail sales continue to impact the lack of industrial availability throughout the state. Also, the continued growth of the life science sector and craft brewing is also filling potential vacancies. We expect to see some signs of recovery in commercial markets as vaccinations increase and our normal routines are restored.”
Karen Rich, a fellow broker at Malone, contributed to this commentary.