Commercial Real Estate Development Trends in 2021
The single greatest driver of the commercial real estate (CRE) market over the last year has been the COVID-19 pandemic. The pandemic caused a radical shift in purchasing habits and a rupture of economic stability for many people.
The CRE outlook at the end of 2019 could not account for what would so quickly come. Now, in 2021, the trends and projections are far different. We will likely never see a full reversion to the trajectory we were on before the pandemic swept through the world.
However, that does not mean devastation for the CRE landscape. On the contrary. CRE investment and development continues, albeit a little differently than expected. New opportunities along with transitions in consumer needs and desires set the stage for a fascinating—and potentially very lucrative—2021 in commercial real estate.
Let’s take a closer look at five key emerging trends in commercial real estate in 2021.
A New Retail Landscape
Thanks to the pandemic, shoppers switched their buying habits from in-person to online. E-commerce increased its hold on overall retail sales by almost 3% over the last year with no sign of decrease in sight. This means less need for the traditional brick-and-mortar storefront and more need for industrial and logistical facilities such as fulfillment centers.
Grocery Stores Hold Strong
Malls and major retailers have suffered, thanks to the pandemic and subsequent e-commerce boom. However, shopping centers anchored by grocery stores are still a good investment. In fact, the stability of grocery stores and grocery store-anchored shopping centers should instill confidence in savvy investors looking for a crisis-proof piece of commercial real estate.
Low Interest Rates Persist
Another impact of the pandemic is on interest rates. Commercial real estate interest rates are expected to remain at an all-time low throughout 2021, and perhaps even as late as 2023. This is a big opportunity for investors. When the cost to borrow money is low it means you get more for what you pay for.
Many investors use low interest rate periods to borrow more cash than they otherwise would to make larger property purchases. When the rates eventually increase, the same investment decision will cost you more money. If you’ve been hoping to make a large real estate purchase but the interest rates have deterred you, now might be the time to make the move.
A Return to the Office
At the start of the pandemic, many companies transitioned from in-person to remote operations. Entire workforces began to operate remotely, with nearly 35% of employees working from home in May 2020. Many thought the transition would be permanent, but statistics show otherwise.
In June of 2021, the remote workforce was slashed by nearly half—from 35% to 14%. The anticipated radical shift away from physical offices to work-from-home operations has not and will not come to pass, given current projections. In fact, it is likely there will be a blend of in-office and remote work for many companies post-COVID. This makes both traditional office space as well as co-working office space enticing options for CRE investors and developers.
Affordable Housing Needs Increase
Stagnant wages, rising housing costs, and pandemic-induced economic downturn have created a need for more affordable housing in both urban and suburban communities. To answer the call for an increase in lower-cost housing options, some CRE property owners have chosen to convert some of their current properties into affordable housing. New investors can capitalize on this demand for low-cost housing as well, by purchasing or developing affordable multi-family units.
A Well-Managed Property Can Thrive in Hard Times
At Maddox Companies, we’re serious about property management. We work hard to ensure our clients’ properties are impeccably maintained and filled with reliable, high-quality tenants. If you’re looking for a company you can trust to manage your commercial real estate properties to the same high standard in both hard times as well as good, give us a call today.