Retail

The recovery of Retail continues however, the total square footage of brick-and-mortar stores will not get back to pre-pandemic levels any time soon.

Class A, higher-end, urban and suburban malls have faired better than other retail locations, such as neighborhood street scenes, strip malls and rural sites.

But even Class A sites have had their problems. The following list of bankruptcies in 2023 to date includes major retailers such as those listed below, and more are sure to come.

• Bed Bath & Beyond – Chapter 11, April 2023, Home Goods Category
• David’s Bridal – 2^nd time filed for bankruptcy, April 2023, Wedding Gown retailer
• Boxed – e-commerce Wholesale products and NYSE listed company, also SVB Bank customer, April 2023
• Independent Pet Partners (IPP) – Chapter 11, February 2023, Pet Supplies
• Thursday Morning – February 2023, Discount Home goods
• Serta Simmons Bedding – Chapter 11, January 2023
• Party City – January 2023, Party Supplies
• Forma – January 2023, Chapter 11, Beauty

Megalytics tracks your retail tenant as well as the industry as a whole.

We can help you stay informed about your tenant, the market and consumer insights so that you can be more proactive in managing your portfolio.

RESTAURANTS

The National Restaurant Association states that restaurants have a shutter rate of 30 percent of new restaurants closing within the first year and nearly 80 percent closing by the fifth year.

This alone is a red flag for landlords who rent to restaurants.  These statistics coupled with significant build-out amounts that some lease negotiations require add to the potential for large losses that can impact a portfolio and building valuation and market cap.

Lessors of restaurants need to be on top of what is happening with their restaurant tenant. Megalytics can help you by giving you real-time tools that will keep you informed about your tenant.

BANKING

Bank are no longer the attractive lease that they used to be.  Disruptive Forces have dramatically transformed the banking industry. In 1988 there were 12,500 banks in the US, as of 2014 there are now less than 4,200.

As clients move more of their banking online, bank branches have closed at an alarming rate and due to unique buildout requirements of banks, these vacant properties are more costly to repurpose.

Megalytics has developed a proprietary methodology for bank scoring and stress testing.

LAW FIRMS

Law firms are often structured as LLC’s or Professional Service Corporations, distributing profits at year -end to the partners.  A rainmaker could walk out at any time and take their book-of-business with them.   This could potentially lead to a firm becoming severely undercapitalized or even going out of business.

Profits and productivity shrank at U.S. law firms in 2022 resulting in a 3.1% loss in net income compared with 2021. This decline in productivity was a result of firms growing their full-time equivalent (FTEs) by 3.6% in Q4. More attorneys with less work to do only has one clear result — plummeting productivity.

Consolidations in the industry continue in the legal industry, as acquisitions are a good strategy for firms to survive, grow or maintain market share while corporations cut back on legal spending. Consolidation together with the new normal of remote work has resulted in reduces office space for many law firms.

Class “A” buildings have been especially hard hit.

We can help you keep up to date on what is happening in the legal community as well as your tenant.

Co-Working Space

In 2017, there were 542,000 people working in coworking spaces in the U.S., and increased to about 1.08 million in 2022, according to Statista Research.  This despite the demand for office space declining due to the Pandemic and people working from home and the new paradigm of remote work. This led to a significant decline in revenue, falling 15.6% in 2020 alone.

Recovery has been modest; however, industry revenue is expected to increase by 1.1% annually over the next five years to $26.7 billion.

The ongoing financial risk to building owners is renting to operators of these spaces with long term leases while the operators rent to their customers with short term leases, sometimes daily rentals, and they can be cancelled at any time. There is no certainty that operator’s revenues are sustainable during extraordinary market and economic conditions.

Megalytics can help you navigate the risks of Co-Working Operators you may have in your building. Contact us for more information.

HEALTH CARE

According to the McKinsey & Company US Healthcare in 2023 Report, The US healthcare industry faces demanding conditions in 2023, including recessionary pressure, continuing high inflation rates, labor shortages, and endemic COVID-19. Profit pools for commercial and Medicare Advantage segments, physician offices, healthcare services and technology, and specialty pharmacy segments are predicted to grow the fastest post-COVID-19. Based on updated and expanded projections, McKinsey estimates that healthcare profit pools will grow at a 4 percent CAGR from $654 billion in 2021 to $790 billion in 2026.

Hospitals continue to face major challenges and the merger of hospitals will continue as they try and get to the economies of scale that are now required to offset growing costs and public and private payer limitations.

Telemedicine, coupled with the growth of Urgent Care facilities, are mitigating the loss of hospitals due to M & A activity. More Physicians and other clinical offices are proliferating in order to serve the rapidly aging demographic.

Landlords must be prepared to evaluate the rapidly changing and growing healthcare opportunities that are coming.

Megalytics can assist you with data and analysis that can provide you with the confidence to match your deal terms with the risk presented.

TELECOMMUNICATIONS AND TECHNOLOGY

The Telecommunications & Technology sector includes a wide range of companies with diverse products and services. They all depend heavily on R & D, the value of patents, and Government regulatory approval in order to maintain and grow market share. In the third para. Add this sentence at the end – “This increased competition will drive subscription pricing models downward thereby having the potential to reduce profits.

More smartphones will likely lead to positive traffic. The enhanced speed of fifth generation (5G) and LTE networks continue to drive customers to abandon land-lines. This is driving the trend to wireless-only households.

M & A activity will continue, subject to federal approvals. While companies merge to enter critical markets, be they geographical markets or based on consumer income, a limited supply of spectrum will remain a key motivator for purchasing other companies.

A second motivating factor for M & A is subscriber saturation that is increasing competition by driving down top-line revenues.  As the wireless service market becomes increasingly saturated, major companies that can no longer rely on new subscribers to stimulate revenue growth will compete for existing subscribers.

Megalytics can help you navigate portfolios that have data centers, tower locations and other communication facilities that undergo changes due to M & A activity.

EDUCATION & TRAINING

This sector encompasses a broad spectrum of categories and at diverse levels. Services offered by this sector include elementary and secondary schools, colleges and universities, technical and trade schools, fine art schools and language schools, both private and public. Services provided by this sector are largely marketed toward public consumers, private consumers, business/commercial/government users and international students studying in the United States. In 2022, the size of this sector was estimated at $2.2 trillion.

The biggest opportunities and risks for landlords in this industry is in the Private Educational and Training Sub-sectors. this sub-sector has experienced significant declines due to public accusations that its educational offerings are inadequate, measured by high loan default rates and lack of gainful employment upon graduation.

Megalytics can provide Lessors with real-time data that may reflect regulatory actions or student/consumer sentiment of tenants in this category. We also provide deep market analytics to help determine metrics for facilities such as student housing.

MARKETING AND DIGITAL MEDIA

The rapid expansion of the global social media sphere has been changing the landscape of the marketing industry over recent years. In recent years, the data-driven business of online marketing has become an explosive growth industry. Technology continues to play a dominant and increasingly complex role in the sector – with the growing influence of mobile, video and even virtual reality on campaigns. As technology becomes more sophisticated, companies are investing in new ways to better understand and communicate with their clients.

• How Marketers Are Using Social Media to Grow Their Businesses?
  What Is the Future for Marketing in the Media Industry?
• What challenges and opportunities do online resources present for the companies in this industry?

Financial Services & Insurance

According to CBRE, Finance & Insurance companies replaced technology firms for the highest share of the top 100 U.S. office leases in 2022. The 100 largest leases, totaling 30.3 million sq. ft. in 2022 vs. 30.7 million sq. ft. in 2021, accounted for 15.5% of total U.S. office leasing last year vs. 15.0% in 2021. New leases, both direct and sublease, accounted for 53% of the top 100, down from 61% in 2021.

According to the 2023 Outlook for the Insurance Industry Report by EY, the insurance industry is facing a highly uncertain macroeconomic and geopolitical landscape. From the lingering aftereffects of the pandemic on workforces and supply chains worldwide, to the war in Ukraine and rising tensions between major global players, to spiking interest rates, increasing inflation and fluctuating currency valuations, every part of the insurance market has been forced to rethink fundamental assumptions.

Coupled with relentless technological advancement, ever-rising consumer expectations and competitive chaos (resulting from the dissolution of industry boundaries) are reshaping the very definition of insurance.

However, despite the headwinds, it’s clear that insurers continue on their transformation journeys. From the digitalization of consumer access to insurance products to the reconfiguration or office space requirements to meet the needs of in-office and remote work requirements, the industry represents some of the top most valuable tenant leases of CRE.

Let Megalytics support your deal-making with verifiable data that can help you take advantage of the opportunities in this market.

MANUFACTURING

In 2005 there were 586.1K manufacturing establishments in the US that employed 13.5M people. In the 1^st. Qtr. of 2023 there are 635.7K manufacturing establishments that employ 11.2M people. In 2023, the Industry revenue is expected to grow to $7 trillion and through 2028 at an annual growth rate of 1.6%.

After 25 years of plant closures, layoffs and corporate America’s offshoring of manufacturing jobs, the Pandemic caused a major disruption for this industry.

First and foremost was the collapse of the global supply chain, which continues to defy correction to this day. The Industry is now bringing back manufacturing to the US as part of a global strategy to uncouple the supply chain.  Industry realizes that the combination of reducing risk by bringing manufacturing closer to end users and cost savings in transportation and reduced shipping delays can offset the lower payroll costs once attributed to offshoring.

In addition, the is a technological revolution that the industry is benefiting from by opening “Smart” factories that reduce labor, improve quality while increasing the ROI.

Many industrial sites are being repurposed as well as being reopened as the onshoring trend is expected to continue for the next five years. What will you do to lease or repurpose your vacant industrial property and what tenant will be the best fit?  Let Megalytics provide you with value added data that will assist your team in making the best decisions possible.

DISTRIBUTION AND LOGISTICS

Transportation and Warehousing revenue have grown at a CAGR of 2.0% to $1.6 trillion over the past five years, in spite of a decrease of 1.3% in 2023, when profit will reach 7.0%. Revenue will grow 1.6% to $1.7 trillion over the five years to 2028, when profit margins will climb to 7.4%. As of year-end 2022, there were 4.3 M enterprises that employed 10.7 M people in the US.

Consumer spending is driving growth. Growing US trade enables expansions for transportation and warehousing services. The freight transportation services index, which represents the overall growth in freight volume, is rising at a CAGR of 0.4%

Profits may be lower due to the volatility of Oil prices and the uncertainty of the Russian/Ukraine conflict. 

Not all is rosy for this sector.  CBRE predicts that Warehouse leasing forecast to fall as much as 15% in 2023. CBRE says vacancies will rise slightly, with net absorption staying positive for 13th consecutive year.

In its 2023 forecast, Prologis said that warehouse development will hit a seven-year low as development starts dropping 60% year over year. Rent growth will exceed 10% next year due to a relative scarcity of supply.

Throughout 2022, Amazon, the world’s largest e-tailer, has struggled with massive warehouse overcapacity and slowing demand from the frenetic pace of 2020 and 2021. In response, Amazon said in May 2022 it planned to sublet 30 million square feet of warehouse space. It has closed facilities and delayed or canceled pending projects totaling about 24 million square feet. According to projections at the start of 2022, Amazon would have 319 million square feet of U.S. warehouse space by the end of 2023.

FITNESS CENTERS

The US industry includes about 30,000 fitness and recreation centers with combined annual revenue of about $27 billion. Most companies operate just one establishment. Over 54 million Americans paid gym membership fees in 2014, and for the second year in a row actual visits to the gyms exceeded 5 billion.  Memberships have grown 18.6% between 2008 and 2014, and the trend continued in 2015.

More health clubs are accommodating the growing number of global employees who work remotely by offering workspace in workout places, according to the Wall Street Journal. Fitness centers that provide workspaces for gym-goers are more likely to enjoy higher membership retention rates and see an increase in discretionary spending for services and products, such as smoothies, workout wear, and massages.

• Who are the winners and who are or may be the losers in this growing industry?

NON-PROFIT AND ASSOCIATIONS

Nonprofits are operations that provide accessible services for worthy causes, and they supply millions of jobs to Americans and represent a relatively huge portion of the United States GDP. Additionally, the revenue of these organizations has also more than doubled over the past decade.

• There are 1.5 million nonprofit organizations in the United States.
• Nonprofits employ 10% of the U.S. workforce.
• 5.7% of the United States GDP comes from nonprofits.
• The total U.S. nonprofit annual revenue is $2.62 trillion.
• The nonprofit sector is the 3rd largest workforce in the United States behind retail and manufacturing.
• 80% of all nonprofit revenue comes from government grants

Nonprofits suffer during economic downturns, political/regulatory changes, and/or receiving branded sponsorships from companies as the donors/people may think nonprofit organizations compromise their altruistic and strategic freedom when they accept corporate donations, i.e. Acorn, Planned Parenthood, etc., resulting in closing of offices.

Let Megalytics help you manage the unique financial risks posed by this induatry.