The COVID-19 pandemic brought about a wave of economic shifts, one of the most notable being a surge in new business applications. As the pandemic disrupted traditional work structures, fiscal policies like the American Rescue Plan encouraged many Americans to explore self-employment and entrepreneurship. The result was a near 25% increase in new business applications in both 2020 and 2021, a trend that has left a significant mark on the retail landscape.
The Surge in New Business Applications
New business applications are requests made to the IRS for an Employer Identification Number (EIN), which businesses use to open tax accounts. These applications offer valuable insight into entrepreneurial activity and the broader economic climate. The nearly 25% increase in new business applications during the pandemic reflects a surge in consumer-facing businesses, particularly within the accommodation, food service, and retail sectors.
This influx of new businesses, especially in the retail sector, has been one of the driving factors contributing to the current tightness in retail space availability. Neighborhood retail centers and strip malls have seen increasing demand for spaces as entrepreneurs seek locations to serve the growing number of consumers who shifted their buying habits during the pandemic. This phenomenon has created intense competition for prime retail spaces, making it harder for both new and established businesses to secure desirable locations.
The Flip Side: Business Failures and Market Churn
While the surge in new business applications is noteworthy, it’s important to recognize that not all new businesses are able to survive the challenges of launching and growing in a post-pandemic world. The Business Dynamics Statistics survey, which tracks the lifespan of firms over time, shows a notable uptick in business failures, particularly in 2021. This period coincided with the continuation of pandemic-related restrictions and social distancing measures, which created significant hurdles for new and existing businesses alike.
Many new ventures failed to overcome these obstacles, leading to a higher rate of business closures than in previous years. This phenomenon, known as “churn,” is an expected part of the entrepreneurial process, but it highlights the volatility that businesses face when operating under unpredictable economic conditions. These challenges have resulted in a fluctuating business landscape, with many openings followed by closures, contributing to the dynamic nature of the current market.
The combination of a high volume of new business applications and an uptick in business failures underscores the challenges in today’s economic environment. Entrepreneurs are taking risks, but many are encountering difficulties as they try to establish themselves in an increasingly competitive market. This churn can be seen across various sectors, including retail, food service, and accommodation, which have experienced both growth and contraction in recent years.
Tight Retail Space Availability: What It Means for CRE Investors
For commercial real estate (CRE) investors, the current retail market presents a unique set of opportunities and challenges. On one hand, the increased number of businesses seeking retail space has driven up demand, making it harder to find and secure properties. As a result, rents in certain areas have risen, particularly in desirable locations where consumer traffic is high.
On the other hand, the increase in business closures raises questions about the sustainability of this demand. With more businesses failing to survive in a post-pandemic environment, the risk of vacant spaces increasing in the future is a real concern for property owners and investors. While some retail centers may see high occupancy rates now, it’s important to keep in mind that the churn in the business world can lead to fluctuating demand for retail space in the years to come.
To mitigate these risks, CRE investors must keep a close eye on market trends and data. Understanding the dynamics of new business applications, business failures, and changing consumer behaviors will help investors make informed decisions about where to allocate capital and which properties to invest in. Being aware of the risks associated with high churn rates in retail businesses can also help investors identify opportunities for repositioning or diversifying their portfolios to reduce exposure to volatile sectors.
The Role of Technology in Navigating the Retail Market
In the fast-evolving world of commercial real estate, having access to accurate and timely data is crucial. As the market continues to shift, it’s more important than ever for investors, brokers, and property managers to stay ahead of the curve. One way to achieve this is by leveraging innovative technologies that provide a clearer, more detailed view of the properties and neighborhoods in which they are investing.
VidTech’s CRE video solutions, for example, offer 4K drone imagery that provides a comprehensive visual understanding of commercial properties and their surrounding areas. With the ability to see detailed aerial footage and visual content that highlights key features of the property, CRE investors can gain better insights into potential investment opportunities and assess the market trends more accurately. This cutting-edge technology helps bridge the gap between traditional real estate analysis and the need for up-to-date, visual data to make informed decisions.
By using high-quality video solutions, investors can gain a better understanding of how the surrounding retail market is performing and whether a property is likely to experience increasing demand or face challenges due to business closures or changes in consumer behavior. The use of advanced technology in commercial real estate not only provides valuable data but also helps investors make strategic, informed choices that are key to navigating today’s competitive retail market.
Conclusion
The pandemic-driven surge in new business applications has significantly impacted the retail market, with demand for space rising sharply. However, the increase in business closures highlights the volatility and uncertainty that entrepreneurs face, and CRE investors must be cautious of potential churn. By understanding these trends and utilizing advanced technologies like VidTech’s 4K drone imagery, investors can make better-informed decisions and navigate the challenges of today’s complex retail environment.
Staying updated on these market shifts and leveraging innovative solutions will be essential for success in the evolving commercial real estate landscape. By adopting a proactive approach, investors can position themselves to take advantage of the opportunities that arise from both the growth and the challenges faced by today’s retail sector.
