iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
20,688 Blog Posts

Has Retail and Commercial Re Changed Forever?

As I work thru my trading slump, I have been thinking about the longer term future of retail and commercial RE, both significant parts of the US economy. Because Americans are malleable and adapt well to change, we have see a remarkable shift in consumer and workplace behavior due to COVID-19.

Companies have learned they can maintain productivity whilst ceding office space to the Vacancy Gods and increase profits. Amidst the retailers benefitting from this shift, AMZN, W, OSTK, ETSY — FCF has surged. Companies like WSM with significant mall square footage just reported good numbers and said online sales now make up 75% of their revenues. What we are seeing here is significant. Companies were forced to produce online and have done so with great results.

How could retail REITs survive? What sort of environment are we heading into for commercial RE, when companies can perform just as well remotely?

The grim scenario creates a barbell trade for online operators vs physical and then extends into banks who have exposure to CMBS. There is massive potential downside to CMBS — only held up now because of the Fed.

Eventually, the vacancies will mean something and those fucking bonds will have to be properly marked to market. Until then, up we go because the clown show continues.

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7 comments

  1. it is showtime

    Hi inner wall st CB circle

    3496.

    I just named a number
    you cant get the S&P
    to hit. Can’t even touch.
    have a good day

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    • ericbakerbruce

      It was 3465 a day ago you fool. God, I hope you are short and getting creamed.

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      • it is showtime

        Uh

        When they run a blowoff leg,
        It’s a few consecutive 1-2% days,
        Same as last time, at the very least.

        Implied in your remark, that you can’t perceive
        I would already know that.

        Why would I set a high number.
        The point is
        Move the goalpost a tiny bit.
        (And) beat it

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  2. ha

    Fly is 100% on target here.

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  3. dragun

    Nailed it. Take the argument further to office space. People working from home, no need to go in. Watch for rotating office days. You’re in M,W,F this week and work from home T, Th. Next Week T, Th in the office and home M,W,F.

    No more office space, just shared cubicles. How many sq ft do you need to enact this? My guess not much.

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    • donnie wads

      None of the numbers on the ground actually bear this out. Office vacancy is up less than 1% since the start of COVID. Rents are flat, not down, and companies are renewing for an average of 5 years.

      It’s pretty simple, what you lost in work from home you gained in the doubling of space needed per employee. SF per employee heading into the pandemic was a record low 100 square feet. Basic physics say you need 150 square feet per employee which is a 50% increase vs an estimated 20-25% decrease from work from home….

      The commercial real estate market looks like this:

      Retail – slaughtered
      Office – Flat to slight decline
      Multifamily – still growing due to compressed cap rates
      Industrial – on Fire

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