commercial property

Real Estate Forecast: the State of Commercial Properties in 2021

Real estate pundits say that 2021 is a good time to start purchasing or refinancing commercial real estate since things might be on the up and up for the real estate industry in the United States. With vaccines about to be rolled out at a national level, with an eventful election season behind us, and with the economy recovering slowly but surely, investing in commercial real estate might be a smart move. Here are some trends we can expect with anticipation and hope as 2021 unfolds.

A return to the office

In 2020, the world saw a phenomenon that no one could have predicted: Empty office spaces worldwide. This year, while there won’t be a full-fledged return to the traditional workspace (at least for the first half of the year), we can expect some level of return to the office, especially since 80% of employees have expressed a desire to return to the office, with about half saying that they would like a setup that involves a combination of traditional workspace setting and remote work when the risks to their health are much lower. ;

The office market might begin to stabilize once again in the second half of the year, with companies looking to create a hybrid model of working-from-home and commuting to the office. As more firms realize the value of having an office space even during the height of the pandemic, the supply will rise along with the demand, and more new constructions and sublease opportunities will come. Landlords might lose the ability to negotiate due to vacancies, which will drive down rent fees and create more competition in digital technology, lease options, and upgrades in indoor air quality and cleanliness.

A tough year for hotels

The hospitality industry was hit hard by the pandemic in 2020, and this new year will, unfortunately, see this trend remain. According to the CBRE Group, the hospitality industry at large is expected to recover more than 50% of revenue this year, but the industry won’t fully bounce back until 2023. The most high-end hotels which often cater to group and business travels aren’t expected to recover until 2024 or 2025. The slow recovery might cause hoteliers to have more outstanding debts, which could then cause many hotels to go under. And since travelers and vacationers would be more inclined to get away from densely-populated cities and towns, they might prefer areas where physical distancing is more possible—like smaller towns near the mountains or have more access to greenery and nature.

Warehouses remain on top

full warehouse

Warehouses proved themselves relatively pandemic-proof last year, and that success will continue to see an upward trajectory this year as e-commerce continues to dominate. Consumers would rather shop from the comfort and safety of their homes. Experts predict that 250 million square feet of warehouse space will find a demand in 2021, which is a huge leap from the annual 211 million square feet that we have seen over the past few years, according to the CBRE Group.

As consumers continue to demand a speedy delivery of their parcels and goods, companies need to continue to find ways to streamline shipping processes, and additional warehouse spaces are key to making this happen. Industrial real estate investors may have difficulty finding deals on opportunities. Still, for commercial real estate investors who already own warehouses, low vacancy rates and high rent fees will become a lucrative and invaluable opportunity.

Apartment buildings will be stable performers

Multifamily complexes or apartment buildings held up well despite the challenges brought on by the pandemic last year. It goes to show that housing will always be a fundamental need, regardless of the state of our economy or people’s capacity to rent. This is why there will always be a demand for apartments, especially for spaces that are being rented out at attainable prices. Real estate investors need to take advantage of the current low-interest rates.

Rent fees in densely-populated urban areas like New York saw a drop in rent prices in 2020. Still, rent fees have already recovered and stabilized in the majority of the United States. They are expected to rebound significantly in 2021, based on Yardi Matrix’s study, a commercial real estate data company based in Arizona.

The Bottom Line

The idea of making real estate investments in the time of a pandemic and a recession may seem intimidating. Still, with the proper risk analyses and fruitful partnerships with commercial real estate loan companies, you might find your risks rewarded. So don’t hesitate to consult with experts and explore your options.

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