Economic Snapshot Overview by Dr. Reid Cummings - September 2020


Posted on October 1, 2020 by Dr. Reid Cummings
Dr. Reid Cummings


Greetings, and welcome to the September 2020 Mobile Bay Economic Snapshot.

2020 will be a year we may never forget, and it is far from over. The coronavirus and resulting COVID-19 pandemic, significant Federal Reserve policy changes and record low mortgage interest rates, devastating weather events across the country, remarkable stock market index swings, heightened social and civil awareness, and oh, let’s not forget about an unusually contentious presidential election year, all have affected our lives in ways we likely never would have anticipated just a few months ago. Along the Alabama Gulf Coast, real estate markets have also experienced some unexpected twists. In our July issue, we reported that the residential markets were on fire and featured comments from several of the region’s top professionals about why and to gain insights into how things look for the months ahead.

This month, we examine the Mobile and Baldwin commercial real estate market. What we found was unexpected. Given the many national stories over the last few months about business closures, even failures, and shifts in attitudes, lifestyles, buying habits, commuting patterns, and work environments, we expected to see significant negative impacts on commercial real estate market performance. To our surprise, however, we found that a number of commercial real estate categories have done better in 2020 versus 2019, and even the ones that have underperformed, for the most part, the differences are not extreme.

Jana Stupavsky and her team created our newest dashboards to help us illustrate the point. Comparing combined Mobile and Baldwin County commercial real estate sales by property category for the period of January through August 2020 to the same 2019 period, the Total Value chart reflects the total dollar amount of sales and the Total Units Sold chart illustrates the total number of transactions. The charts are interactive and hovering over the horizontal bars shows percentage changes from 2019 to 2020 as well as a listing of the top 5 transactions for each year studied.

While 2019 was a strong year for multifamily sales, this category has also performed well this year. Surprisingly, 2020 retail sales values and transactions are up, showing that perhaps retail is not dead as so many national stories have suggested. Total 2020 industrial sales are on par with 2019 with only slightly fewer transactions. 2020 healthcare property sales values were buoyed largely by a single transaction, the $39.5 million dollar sale of the new Veterans Administration facility in Tillman’s Corner. Office property sales values are off -32.8%, but the number of transactions only declined -17.4% in 2020 versus 2019. Although stories in late 2019 suggested 2020 would be a down year for recreational vehicle sales, it seems the pandemic has pushed RV sales to the upside as more people choose to vacation on wheels. Our recreational/RV category reflects this trend with both total values and units sold in the green for 2020. Interestingly, hotel sales are in the green as well for 2020, with one property selling in both 2019 and 2020. Though total restaurant sales values are less in 2020, the number of transactions is up 18.2%.

We think it is important to bear in mind that in commercial real estate, the deal cycle is much longer than on the residential side of the fence. Whereas a home sale may take 4-6 weeks to close if mortgage financing is involved, commercial sales can take months to close. Our sales data, especially those transactions that occurred in the first quarter of the year, may include many properties placed under contract in 2019, long before the coronavirus began affecting business in the United States. So, for more insight, we asked area commercial pros to weigh in about where we are now and where we are headed.

What is our current commercial real estate market like?

The current market is improving. More and more people and businesses are moving on with their plans. Most feel the economy has opened up. Philip Hodgson, Coldwell Banker Commercial Reehl Properties

I would say it’s average, not great in terms of total activity but the quality of clients is good, meaning those clients that are working on deals are capable and will most likely finalize transactions. John Vallas, Vallas Realty

Very busy. Seems to be attributable to a number of people wanting to move here due to quality of life. Port expansion in Mobile seems to be garnering some attention from new industry. Matt White, White-Spunner Realty

Stable and getting stronger. Pete Riehm, NAI-Mobile

Baldwin County is booming. Demand is high and supply is low.  Lydia Franz, Re/MAX Orange Beach Commercial

The Mobile Commercial Real Estate Market has been “hit or miss” for some time now - based on aging inventory and either a lack of available land to build new product or a resistance by tenants to pay the rent needed by developers to justify ground up construction. The pandemic has added a whole new layer to this by stressing some of the darlings of the big box retail world (Stein Mart, TJ Max, etc.), as well as the many retailers that have struggled to compete with Amazon and other online offerings. Nathan Handmacher, Stirling Properties

Interesting. David Milstead, Bellator Real Estate & Development

What types of commercial properties are performing well?

Surprisingly restaurant listings are getting a lot of activity. The pandemic certainly hit the restaurant industry hard and those that were already struggling closed. This created a large supply of restaurant listings but at the same time, the users that survived or even thrived during the height of COVID are pursuing new locations. John Vallas, Vallas Realty

Our business has seen a lot of activity particularly on industrial and medical properties as well as grocery anchored shopping centers. The “Amazon” affect has been sped up by the pandemic, making industrial land and buildings hot commodities and the public’s general avoidance to eating out has been a boon for grocery operators. All the while, the expansion on the medical side has continued its rapid pace. Nathan Handmacher, Stirling Properties

Industrial, land, and multifamily. David Milstead, Bellator Real Estate & Development

Businesses in good locations are doing well. Philip Hodgson, Coldwell Banker Commercial Reehl Properties

Industrial, supply chain/distribution, drive-through enabled, and alcoholic beverage sale properties. Lydia Franz, Re/MAX Orange Beach Commercial

Grocery anchored. Matt White, White-Spunner Realty

Industrial! Pete Riehm, NAI-Mobile

What types of commercial properties are not performing well?

Restaurants without drive-through capabilities. Matt White, White-Spunner Realty

Retail, office, and hospitality. David Milstead, Bellator Real Estate & Development

Large offices are my slowest sector. Philip Hodgson, Coldwell Banker Commercial Reehl Properties

Traditional retail goods stores. Lydia Franz, Re/MAX Orange Beach Commercial

Retail and office. Pete Riehm, NAI-Mobile

What is the biggest challenge for our market?

Regulatory approval processes and extended timelines for new construction. Lydia Franz, Re/MAX Orange Beach Commercial

The challenge we face (or will face) is what to do with the big box vacancies as they come online. It is hard enough to fill the void, but certain restrictions, such as zoning, co-tenancy, parking and other issues are going to make a hard job even harder. The needed rebalancing should be more of a gradual shift that many will not even notice. Nathan Handmacher, Stirling Properties

Retaining good political leadership: local, state, and national. Matt White, White-Spunner Realty

Product availability; there is a shortage of quality product in all categories. Pete Riehm, NAI-Mobile

The uncertainty of the current COVID restrictions and the outcome of the upcoming election. Philip Hodgson, Coldwell Banker Commercial Reehl Properties

The election and the coronavirus. David Milstead, Bellator Real Estate & Development

Specifically, how has the pandemic affected our market?

Hospitality has been severely hurt, retail has suffered, office has become soft, but industrial has remained healthy. Pete Riehm, NAI-Mobile

It stopped everything for about 3 months. David Milstead, Bellator Real Estate & Development

Positively. Consumers from larger metro markets are moving to our area to gain better quality of life. Matt White, White-Spunner Realty

No negative effects in Baldwin County. Lydia Franz, Re/MAX Orange Beach Commercial

Office leasing may be the slowest sector but has shown some improvement over the last 30 days. Many businesses were shut down and people were staying at home. Philip Hodgson, Coldwell Banker Commercial Reehl Properties

What is the biggest opportunity for our market?

Low interest rates. David Milstead, Bellator Real Estate & Development

To be intentional that local service provides benefits from the opportunities that are seeking our market. Matt White, White-Spunner Realty

Distribution as the Port of Alabama grows. Pete Riehm, NAI-Mobile

Baldwin County is growing rapidly and the commercial market will be the next boom in the area. Philip Hodgson, Coldwell Banker Commercial Reehl Properties

Infrastructure improvements. Lydia Franz, Re/MAX Orange Beach Commercial

How do you see the market performing next year?

I expect 2021 will be a good year for commercial properties overall unless we have a major political/policy shakeup following November’s election. Nathan Handmacher, Stirling Properties

Depends on the election and interest rates.  Our area should do well with any stimulus from the storm for the next 2 years.

David Milstead, Bellator Real Estate & Development

Booming! Pete Riehm, NAI-Mobile

Absent political initiatives that disincentivize development, very well. Matt White, White-Spunner Realty

Very well. Lydia Franz, Re/MAX Orange Beach Commercial

I see a strong commercial market for the next few years. Philip Hodgson, Coldwell Banker Commercial Reehl Properties

Contrary to our expectations based on the data alone, Mobile and Baldwin commercial real estate markets, though not without challenges, have thus far survived the pandemic and look poised for continued growth in the year ahead. Given how busy they seem to be, we cannot express fully our gratitude to the commercial agents who took a break long enough to help us learn more about conditions ‘on the street.’

Until next time, from everyone at the Center, we wish you and yours all of the best.


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