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CRE fundamentals are bettering, however the restoration is greater than a yr away

Commercial real estate fundamentals improved in July, but the pandemic continues to affect development projects and is expected to remain a significant challenge for more than a year, according to a NAIOP Commercial Real Estate Development Association COVID-19 impact report.

Surveys of 347 development companies and brokers across the country showed positive growth in acquisitions of industrial, office and apartment buildings in July. "More respondents said they had seen these businesses than in previous months," said Thomas Bisacquino, president and CEO of the association.

92.6% of those surveyed reported an increase in total acquisition activity for buildings in July. This corresponds to only 70.7% in June.

Since the industry's COVID 19 impact survey began in April, acquisitions and new development activities for industrial and office buildings have been relatively strong in the past month. In fact, office business improved in July for the first time since April. Some buyers of industrial buildings found that their businesses were supported by the pandemic's acceleration of e-commerce.

However, the association suggested caution and found that such upward movements were not evenly distributed across the commercial real estate sector.

For example, office building deals remained "unusual" in certain markets, he said. In fact, 52% of respondents said they had no office business in the past three weeks.

Retail real estate deals were also particularly elusive. 79.6% of respondents said they had no new acquisitions or retail developments in the past month, Bisacquino said.

Economists found that these results were anything but surprising given the rise in retail bankruptcies such as Lord & Taylor, Brooks Brothers and Sur La Table's filing in recent months.

Activities for new apartment buildings were mixed, with half of those surveyed reporting an increase in building acquisitions, while 40% reported an increase in new buildings.

Given the rise in corona virus in most of the country, real estate developers and brokers said the effects of COVID-19 are likely to affect their industry for more than a year.

Projects such as the opening of the highly anticipated Daytons project will continue to be suspended in the partner cities.

The renovation of former Macy's office space at Nicollet Mall in Minneapolis should open the lower retail and grocery stores by June.

Instead, this opening has been postponed and there is still no announcement about tenants on the upper floors being converted into offices.

Jim Durda, a longtime real estate manager and general manager of downtown Minneapolis, said downtown has seen a variety of major development projects in recent years.

Those that are already in development, such as the 34-story RBC Gateway project, which includes the Four Seasons Hotel and the new headquarters for the RBC Wealth Management project, as well as Thrivent's nearly completed downtown headquarters, are underway on schedule.

But what about new offers?

"None in the city center," he said. "At the moment, I think demand will be kept in check while people are being reset."

Durda added that he did not expect offers for new commercial buildings in the city center until tenant workers returned to the city center and vacant office space had already been rented.

Nationwide brokerage and research firm JLL announced in its second-quarter report last week that its spec-building efforts in twin cities would cease with the arrival of COVID-19.

However, the demand for manufacturing and distribution is now recovering and should benefit construction or construction agreements, especially for medical device, pharmaceutical and other life science companies.

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