Real estate was undergoing drastic changes well before the COVID-19 pandemic hit. Buildings were being constructed with greater technological innovations, green features, and flexible options for commercial tenants. However, the COVID-19 situation has accelerated some of these transitions and making new opportunities for investors ready to move into the next phase of commercial real estate investing. Here is what you need to know about this latest trend and how you may be able to take advantage of the changing landscape.
What Is Adaptive Reuse?
Adaptive reuse is the adapting and repurposing existing commercial real estate buildings to suit the evolving needs of investors, owners, and commercial tenants. While each adaptive reuse project will include its unique features, some of the characteristics that may make a project eligible for adaptive reuse includes:
- Adequate space – Many adaptive reuse projects will use the existing space and reconfigure it. While adaptive reuse projects may include additional construction, there must be open space available for this option.
- Functional or technological inadequacies – Adaptive reuse projects typically involve a property with a high rate of vacancy, some degree of disrepair, technological shortcomings, or other challenges that make it infeasible to continue in its current condition.
- New use – There must be some further, reimagined use for the space that is different than how it was previously used.
- Economic viability –The project must be economically viable and a good option for investors. Some adaptive reuse projects are financially viable due to government incentives or community collaboration.
Analyzing Adaptive Reuse Opportunities
The COVID-19 crisis has taught us that we need to adapt to thrive in this new normal. Adaptive reuse projects rely on investors and brokers to think outside the box and reimagine spaces that had somewhat limited roles in previous iterations. Visionary thinking, coupled with ready capital investment, may allow some CRE investors to make their stake in a changing real estate market. Some available markets and considerations for adaptive reuse include:
The retail industry was already struggling before the current crisis due to the rise in e-commerce and the preferences of younger buyers. Social distancing guidelines, the fear of contracting a life-threatening virus, and more remote work has amplified this situation. However, former retail spaces may still serve a useful purpose, such as warehouses or distribution facilities. Big box stores with wide-open spaces may also be able to reclaim these facilities. These options may be more viable with the migration away from urban areas to suburbs and the greater demand for ship-from-store options.
With travel restrictions in place and a decline in the hospitality industry, innovative investors transform these vacant properties into new uses, such as student housing developments, residential work/live units, or multi-family housing properties. Since hotels often have coveted amenities like business space, gyms, swimming pools, and large meeting spaces, investors can take advantage of these current offerings while considering new uses for the space.
While many restaurants have struggled since the beginning of the crisis, others are adapting their business models to be take-out only, catering facilities, commercial kitchens for packaging companies, and offerings
If you would like to learn more about current opportunities and how you can reshape existing buildings to evolving needs, call Arthur Nachman at (703) 864-2900 for more information. He has decades of industry experience and is skilled in several different property types, so he can offer an insightful market analysis to help you decide on your next project.