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The Future of Commercial Real Estate

The Future of

Commercial Real Estate

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We reached out to Carol Epstein, Bev Uhlenhake and the team at Epstein Commercial Real Estate in Bangor, Maine to share their interpretation of the status of local commercial real estate. They have been presenting this data since 2007 to the annual Maine Real Estate Development Association(MEREDA) Annual Forecasting Conference. As the pandemic forced many businesses to shut down and send workers home, the future of commercial real estate has been a topic of discussion nationwide. Remote working became the norm, rather than the exception. As many companies consider continuing to allow employees to work remotely and downsizing their office space, we wanted to know what that means for the Bangor region?

How is commercial real estate faring?

Bangor is historically known for its stability. The commercial market is not overbuilt and tenants generally stay put for many years.

That said, our current market is a bit of a mixed bag. There are pockets of strength and pockets of weakness. Generally, the real estate market follows the business environment so where businesses are doing well, the commercial real estate market is doing well.

We are seeing strong confidence in the future and businesses have left the wait-and-see stance of the early pandemic behind and are now aggressively making decisions and planning for the future. This is translating into demand for space in all sectors. The increased demand and limited inventory have created a momentum that we hope to see continue.

OFFICE - Are office tenants staying put?

So far, yes they are. Most office tenants are committed to existing leases which have continued whether their employees are working remotely or on site or some hybrid combination. We hear from many office decision-makers that they are committed to a future of on-site work although there will certainly be more flexibility with some working from home for some part of the week.

Office tenants are renewing leases and planning for a future of on-site work. We are seeing interest in office layout modifications to accommodate some level of social distancing. We’re certainly aware that some office users are considering downsizing and relying more on remote work, but so far it’s not been a significant trend in the Bangor market.

INDUSTRIAL - What are you seeing in the industrial sector?

Plain and simple - our industrial buildings are full. The communities with the largest inventory of industrial buildings - Bangor, Brewer, Hampden and Hermon - are dealing with a 1% vacancy factor. Such high occupancy has led to strong and

increasing industrial lease rates and tenants are anxious to renew so they continue to have a spot in the market.

Our older buildings have been refurbished and put back in use. And while ever-higher construction costs limit new industrial construction, some users will be building this summer season. We expect to see continued strength in the industrial market and continue to discuss how to increase our industrial building base so that our region can grow.

RETAIL - What’s changed the most in retail in the last year?

The overwhelming change in retail in the last year has been that so many national retailers have closed their doors permanently. There are fewer retailers out there, and there is more vacant space. Given that the Bangor area has not been overbuilt, the vacant spaces here are not as numerous as in Portland or Augusta.

One bright spot in the retail market is our grocery-anchored neighborhood shopping centers. Groceries have had a good year and occupancy has remained high at these centers. And we are seeing new service businesses actively looking for spots in these neighborhood centers - hair salons, nail studios, pet supplies, paint stores, etc.

Another active segment has been cannabis. 2020 was the year that retail cannabis took off. Even in the depths of the pandemic there has been activity in this industry.

How is downtown Bangor doing?

We're excited about the continuing trend of high quality apartments in our downtown buildings. We’ve been seeing two or three apartment conversion projects each year and there is a growing community of downtown residents - professionals, retired folks, and people of all ages.

While the office market was quiet for most of the pandemic, we’ve seen some significant activity downtown as firms decided that downtown Bangor is a hip place to work. We’ve seen three large engineering firms commit to downtown locations which will strengthen occupancy in our downtown office towers and bring foot traffic to our downtown.

Downtown retailers and restaurants have struggled throughout the pandemic. As vaccination rates increase and infection rates hopefully decrease, we hope to see patrons back out on the streets and in our shops and restaurants.

We’ve heard you say that economic development struggles when there aren't vacant buildings to move into. Can you explain that?

Economic development is dependent upon commercial real estate (and homes) being readily available for growth, and we don’t have that in our current industrial market. We need what we call a “functional vacancy” - some room to move. If every spot is filled, new and existing businesses have nowhere to locate and cannot take advantage of new opportunities within their industry.

As we move into the recovery period from the pandemic, this is even more important. It’s at times of overall economic growth that many businesses take on new opportunities, but without space, the growth can be stifled.

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