Nothing can be said or done in the real estate industry in 2021 without mentioning the impact that the 2020 COVID-19 pandemic had on the industry as a whole. Perhaps one of the most affected sectors is commercial real estate, especially with the rise of remote work and how it affects the use of office buildings.
2021 is set to be an exciting year as the industry looks to bounce back on its feet. But what are we to expect from commercial real estate in 2021? Here are ten predictions.
1. The Effects of The Pandemic Go On
The economy as a whole is set to hit a recession due to covid-19, and history proves that this will lead to distressed sales. This might not be rampant as the recession starts with many property owners trying to hold on and depend on borrowers and government assistance. However, they won’t hold on forever. So, we are likely to see some distressed sales towards the end of the year.
2. Office Buildings and Remote Work
Many office buildings were closed during the pandemic as many companies were forced to adopt remote work. This has put the fate and future of office buildings under a cloud. Some companies have announced that their employees will continue to work from home. This is likely to affect office buildings in many ways. Thankfully, as predicted by experts at the essay writer service, office buildings will reopen soon as the vaccines start to roll out and normality returns. Fingers crossed.
3. Interest Rates Will Remain Low
The US economy hasn’t recovered from the pandemic. With a shrinking economy and a very high rise in unemployment, there isn’t much room for inflation. The economy continues to be weak, so inflationary tendencies are low at the moment, and that might continue for a while. The direction from the Federal Reserve is to keep interest rates low for now. We will see a rise in interest rate when inflation increases, and this isn’t likely to happen anytime soon.
4. Population Declines In Major Cities
Many of the big cities will see their populations continuing to drop as people migrate to other places. It is worth mentioning that living in these cities was already becoming too expensive, even pre-Covid, with most of the bills being on the high side for the average middle-income American. If you factor in Covid-19 now, with public health issues and work-from-home policies, there are more reasons to move to places with a lower living cost and better weather and lifestyle.
5. Rise of Warehouses
The rise of warehouses in the Covid-era is a boon for the commercial real estate industry. This is a promising type of property to own at this time. This is because of the demand for warehouses. The reason for this is related to the fact that retailers are trying to respond to a massive increase in e-commerce. A few industrial properties will rise drastically in value this year, and warehouses are one of those. This means that real estate investors with warehouses will benefit from an increase in rent prices and property appreciation.
6. Multifamily Occupancy
While asset revenues are likely to be challenged this year, it is expected that multifamily leases, rents, and occupancy will continue to be strong in 2021. The year might bring some disruptions after moratoriums on evictions lapse in both suburban and urban areas. This will disrupt lives, work, and other things we are now used to.
7. Asset class winners
As you would expect in a situation like this, there will be both winners and losers. Some industries set to lose are office buildings, hotels, and retail, as they will see their prices fall by about 5% to 10%. On the other hand, life science and data centers, single-family homes, industrial, etc., are expected to see an increase in their valuation. It is expected that in these favorable sectors, transaction volumes are going to be lower than they should. This will lead to higher pricing as there will be more competition among investors.
8. Waning Hospitality
The hospitality industry is an important one for many reasons. However, it has suffered massive hits due to Covid, and the recovery is expected to be very slow, especially in highly populated cities. So, investors are likely to look away from hotels and other real estate investments related to hospitality. Investors are going to put their focus into recovering markets, especially those recovering very quickly.
9. The Shortage Of Affordable Housing
Pre-Covid, there were already a large number of Americans that lacked affordable housing. The pandemic only brought this to the fore and showed just how important it is. Increasing delinquencies with Class C types of apartments are a significant challenge for 2021. People living in Class C types of apartments are the ones that were affected the most, as most of them work in service economies like restaurants and hospitality.
10. Businesses Suffering Inequality
The recovery in 2021 will be K-shaped and will favor some economic groups and industries over others. Service-based platforms such as Google, Amazon, Walmart, and local restaurants will lag, and tech’s fortune will rise massively to an all-time high. The people that will suffer most are blue-collar workers with low incomes. The inequalities are going to be evident in commercial real estate. We are likely to see small shop space reach a high vacancy level, making rent prices fall rapidly.
Conclusion
The outlook isn’t all good, and neither is it all bad in the commercial real estate industry. The recovery from the pandemic will be a long and hard one for many, while it will favor some other groups of people and industries.
We hope you found this blog post 10 Commercial Real Estate Predictions For 2021 useful. Be sure to check out our post How Has Commercial Property Been Affected By COVID-19? for more great information!
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