Although national real estate trends have a direct impact on commercial leasing, local markets are more susceptible to the needs of users and the owners in their particular area. The demand for space, inventory, vacancy and rental rates are all factors that help define the local market.
The commercial lease market is comprised of three main types - office, industrial and retail. All have undergone significant changes in the recent past and continue to evolve to meet market and user demands.
Without doubt the retail category is undergoing the greatest transformation. Growing access to the internet, the evolution of E-Commerce and changes in the way consumers prefer to shop have led to closings of major store chains. Nationally, some 6,000 closings were reported last year, and the trend does not appear to be slowing down.
Even though store performance of major retailers in Puerto Rico have frequently surpassed national averages, this has not been enough to avoid local closings of giants such as Toys “R” Us, Sears, Kmart, Borders and Payless. Retailers are having to re-inventing themselves and seek ways to adapt to new trends in consumer preferences, behaviors and demographics. To attract customers to the stores, retail spaces are shifting to provide venues for entertainment, dining and services.
In regard to the office space market, tenants are reducing their footprint and requiring more efficient use of their spaces. The tendency is towards fewer private offices and more open shared work space, effectively reducing the ratio of square feet per employee. Downsizing is also a result of the growing acceptance of telecommuting with more and more employees working at least part of the time from home.
In Puerto Rico, Hurricane Maria was a gamechanger. Demand for prime office space increased. Companies who were unable to operate for weeks or even months due to the lack of electricity, telecommunication service and/or property damage to the place of work are now demanding full power generators, redundancy and reliable technology and infrastructure to guarantee continuity of operation.
The influx of firms and individuals relocating to Puerto Rico to take advantage of the various tax incentive programs, as well as space needs of federal agencies and private entities that have opened shop on the Island for the post hurricane reconstruction work have all contributed to the increase in demand for office space, offsetting the effect of office downsizing and significantly reduced the vacancy rate in many office buildings.
The industrial space market was also significantly impacted by the hurricane. The loss of thousands of square feet of space damaged by the hurricane added to increased demand has led to a shortage of inventory.
After a decade of struggling, the local commercial lease market seems to be picking up.