The rise of remote work has resulted in a surplus of empty office spaces, particularly in downtown areas. According to a recent report from CBRE Economics Advisor, the availability rate for retail space in U.S. downtown markets was 88 basis points higher than suburban rates during Q3 2024 – the largest difference since CBRE EA began collecting data on retail.
However, it is important not to make sweeping generalizations about commercial real estate based on this trend alone. In fact, after conducting an analysis of downtown retail performance across 19 cities using a hexagon method, CBRE EA found some interesting insights:
Retail thrived when located alongside prime or trophy office buildings . These areas are known as “Prime Business” districts and saw the strongest growth in rent compared to their overall market performance according to CBRE EA. Additionally, these Prime Districts outperformed “Vibrant Mixed-Use Districts,” which can be attributed to their already high rent levels – with a premium of 74% over Prime Business Districts.
Even non-prime business districts exceeded market averages . Despite lacking prime office space nearby, these districts still performed well due to limited availability and proximity to suburban office parks where consumers are spending more money nowadays accordingtoCBREA.
Based on these findings,CBREA experts recommend considering investinginretail properties withindowntowndistricts.”Withofficefundamentals showing signs of improvement,it may be worth exploringretail opportunities nearprimeoffices,”they added.
In conclusion,DowntownDistrict Retail may not be as dire as initially thought.Thereare still promising opportunities for investors if they consider factors suchasproximityto prime officesandlimitedavailabilityofspacein non-primebusinessdistricts.Withthe potentialforimprovementinoffice fundamentals,it’sworthconsideringinvestingindowntowndistrictretailpropertiesaccordingtoCBREAexperts.This highlights that while remote work has had an impact on vacant office spaces, it is not the end for downtown retail and there are still opportunities to be explored.
