What Yelp’s Latest Report Means for Commercial Real Estate

By Published On: June 21, 20214.5 min read

With easing COVID-19 restrictions, more businesses are opening across the country, including those on Yelp. The Yelp reviews have resumed their regular pace, even if many of them are still limited to takeout.

We all know Yelp, the crowd-sourced reviews website that was first founded in San Francisco back in 2004. In recent years it has become a dependable way to sniff out sketchy businesses before you become a customer. The platform helps promote trustworthy independent businesses, based on the true opinions of its customers. If “word of mouth” was a website, this is it.

Now the folks at Yelp have been crunching the numbers, tracing the rise, fall and resurgence of small businesses during the pandemic. According to Justin Norman, the data science vice president at Yelp, new business openings are at an all-time high — the highest since the pandemic began.

The Q1 Yelp Economic Average report showed that business re-openings increased in the first quarter, hitting the highest levels since August 2020. Over the past 12 months, Yelp found that there were over 500,000 new business openings in the U.S.

Even though there are still restrictions across the country, the pandemic home buying spree in smaller cities seeing a real estate boom and the best cities for real estate investment has sparked new, local businesses to open. That stimulus comes with consumer growth, along with new tenants and homeowners.

“After a challenging year, 2021 is off to an encouraging start for the local economy, with Yelp data signaling a recovery,” Norman said in a statement. “New business openings also spiked between January and March 2021, with new openings for many categories above prior year levels.”

It’s the first time in over a year that consumer reviews reflect a surge in new business openings, including outdoor sporting excursions, boat, bus and walking tours, as well as accounting services, according to a report on the Yelp Economic Average website.

Of the new businesses that have opened since last April (besides the 700% increase in grocery stores), a spike of 28% opened in the first quarter of 2021. That statistic includes roughly 69,000 new restaurants and food delivery businesses that have recently opened.

“People are inspired to take advantage of low rents and create new jobs by putting their personal savings towards starting a new business venture,” Norman said.

But will restaurants return to pre-pandemic levels? According to a recent report from Eater, some laid-off chefs in New York City are becoming entrepreneurs who work from home.

Many micro-entrepreneurs and sole proprietors are turning to Instagram for meal orders. For example, a company run by New York chef Lauren Tran has been selling $40 pastry boxes made in her kitchen, which she advertises on her Banh by Lauren Instagram page.

There has also been a spike in more banks and tax services opening, which in part aid these new businesses and individuals. States with the highest re-openings are Mississippi, Arkansas and Delaware, who have seen 65% of reopening since January. In some states, there has been a vast increase (up to 2,000% increase) in outdoor sports activities, from horseback riding to pickleball.

“The start of the new year brought many positive changes to local economies, a downward trend of nationwide COVID-19 cases, more than 200 million vaccinations administered and many local businesses reopening with larger capacity and indoor operations,” Yelp claimed in their report.

Businesses on the east coast are seeing more openings than on the west coast. California is among the lowest, as are Texas and Nevada.

The Yelp Economic Average is an interesting report because it traces hyper-localized consumer interest and demand through the activity on Yelp.com. Their methodology also measures how businesses have survived throughout the pandemic, by tallying up the activity of consumer interest (number of page clicks, written reviews and photos viewed and uploaded) in local businesses. As we know, the more a business is positively reviewed, the more consumers trust it.

The key word here is ‘local,’ as many people have consciously supported their local economy throughout the pandemic, versus ordering food from major chains and corporations. To Yelp, local consumer transactions are an understudied part of the economy, so their report aims to provide more data.

They also want to support their local community. The company is expanding their data on Asian-owned businesses as consumers are prioritizing diversity when it comes to buying choices to support a diversity of entrepreneurs, from women-owned businesses to Latino and Black-owned businesses as well. It’s what Norman calls “celebrating these communities and celebrating these businesses.”

The growth continues. Across the U.S., over 146,000 businesses have opened since January of this year. While this surge has been mostly in food delivery companies and restaurants, another popular business seeing a surge is those selling homewares, as well as auto service repair. It’s what Yelp calls “how consumers are beginning to return to some pre-pandemic activities.”

With the home buying frenzy came truck and dumpster rentals, and junk removal companies to help with moves. Among the home-focused sales, consumers bought products to improve their home space, specializing in renovations.

“Along with a downward trend of nationwide COVID-19 cases and an increase in vaccinations,” Norman said, “these are all promising signs of rebounding local economies.”

Previously we thought of Yelp only as a tool for avoiding bad small businesses and chain locations, but the site could also become a valuable supplemental resource for commercial real estate investors. Where there’s new Yelp reviews, there’s new real estate.

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