A commercial real estate (CRE) boom in 2021 may seem unlikely, given the pandemic’s impact on the economy. The subject, however, deserves attention as commercial real estate investors may find opportunities through resilience and innovation.
With the start of 2021, we may be able to start thinking about the rebound process in the industry. Within this in mind, we’ll take a closer look at where the year started, the market’s past, current, and future trends, how it was affected, and how investors deal with the current situation.
Cities with a Booming Commercial Real Estate Before COVID-19
As 2020, the economy’s strength could be seen in CRE as cities drew investors’ attention, and commercial real estate was booming. Low unemployment numbers and high profitability attracted both migration to cities, and cash from investors. The following cities managed to obtain significant revenues through this formula before spring.
1. Dallas, TX
With steady expansion and a robust, diversified economy, office space Dallas, TX saw growing demand, leading to a booming market for real estate agents in Dallas, TX that helps any investor. The metropolitan area is already a known transportation hub, and the DFW International Airport will see an expansion by 2025. Amazon Air also contributed to this trend through a new regional hub, and the Cotton Belt Regional Rail Corridor and the Silver Line will connect Dallas with surrounding counties by 2022.
2. Atlanta, GA
Hipsturbia — urban areas popular with Gen Z and millennials — are a growing reality among Atlanta’s mixed-use developments. Alpharetta and Decatur are prime examples of this and attract Millennials who like downtown areas but want to avoid long commutes. Rents are expected to grow by 4% by 2024, making it a hot market for real estate investors.
3. Charlotte, NC
This business-friendly city developed through the manufacturing and technology industries that came here to invest and the realtors in Charlotte, NC get new inquiries every day. As a result, 1.5% of the US real estate investment in 2019 went there. However, as Charlotte is a city that wants sustainable growth through investments in infrastructure, the administration will be expanding Charlotte Douglas International Airport over the next five years, as well as the metro area’s bus and light rail networks.
COVID-19’s Impact on Commercial Real Estate
Besides the pandemic’s impact on the economy, the CRE market’s asset classes were affected to different extents. While some sectors of commercial real estate — such as e-commerce — were less affected, others are still facing considerable challenges. Demand for each CRE sector varies and the overall trend for the market is toward adaptability.
Industrial
With e-commerce changing the way industries work, industrial properties saw increased demand as stores moved to warehouses for online orders. While the supply chain was affected by the pandemic, inventory increased to satisfy demand, leading to increased space needs. Retailers and essential businesses were at the forefront of economic recovery through e-commerce. Rents are still expected to drop but only moderately and with a possibility of fast recovery as the economy will return to a kind of normality.
Retail
Retail was already facing challenges in the years before the pandemic, and shutdowns and decreased customer spendings increased the challenges the industry was facing. However, through a combination of factors, retail saw a good rebound toward the end of the year, underlining it as a possibility for investors.
Multifamily
The rental sector might encounter difficulty from increased unemployment as people prioritize their spending. Vacancies may rise, and rents have been decreasing since March, especially in major cities. Suburbs may provide solutions for people who want more space for remote-working, and renting office space in suburban areas was a growing trend in 2020, as well.
Office
Social distancing measures have had a great impact on the office sector, as many companies switched to a full work-from-home model. However, while vacancy may increase as rent renewals slow down for the time being, we will have to wait and see how the sector fares after offices gradually reopen, with employers pivoting from full telecommuting to part-time remote work.
Expectiations for 2021
The economy may witness encouraging trends as more people get access to vaccines, and further governmental assistance may help the ailing retail industry. With the significance of e-commerce, industrial space will likely stay strong, and the status of all other asset classes will be defined by the macroeconomic context.
Besides cities that went saw sustainable growth like Dallas, TX or Alpharetta, GA, researchers look to other metros like Washington, D.C., San Francisco, CA, or Denver, CO as areas where a recovery could be easier.
Conclusion
Overall, analysts are optimistic about the commercial real estate market, as current vacancy rates are below those seen in 2008. It is expected that through spring and summer, real estate will see growth through the distribution of vaccines and government aid for businesses and consumers.
Guest post courtesy of realestateagent.com. None of the data or opinions presented within this article belong to CommercialCafe or its affiliates.
