Commercial Real Estate Expectations in 2021

Where will the business be in the commercial real estate industry this year?

Medical and life science properties, along with industrial properties, will reign the commercial sector this year, according to a recent Million Acres survey. Thirty-nine percent of respondents chose medical and life science properties, while 32% said industrial, followed by 18% who said self-storage would be the top sector. Only 2% of respondents chose office properties.

“The industrial sector was the undisputed commercial real estate champ in 2020 and expect it to remain strong in 2021 together with medical office and data centers,” said Joel Kreider, president of the Philadelphia Chapter of Society of Industrial and Office Realtors® .”Investors will be chasing opportunities throughout those three sectors this year and look for a trend toward smaller warehouse deals with expanded parking ratios as e-commerce fuels the need for last mile logistics.”

Commercial real estate investors are feeling optimistic. According to the 2020 DLA Piper Annual State of the Market Survey, 58% of survey respondents said a great supply of available investment capital is promising, especially in the warehouse and logistics and life science and biotech, with warehousing and logistics as the top choice. Both of these choices saw large gains from the 2019 survey. Suburban office space also saw a jump, representing interest in 21% of respondents.

On the other hand, the survey found that the biggest decline in interest from the 2019 survey was in student housing at 44%, followed by senior housing at 13% and urban and transit-oriented mixed-use development at 10%.

The retail space is expected to continue to suffer. More than 8,000 stores closed in 2020. According to Retail Dive, retail vacancy rate was up to 10.5% in the fourth quarter in 2020 across the U.S. Malls especially took a hit, with vacancy climbing 0.4%, reaching 10.5%, the highest level in more than 20 years.

“Office, retail and hospitality will continue to struggle in 2021 with hopes for a slow recovery to start in the second half of the year as the vaccine sees wider distribution. No one knows what the new ‘normal’ will be in office space design and demand, but many workers are feeling tired and frustrated with remote work and virtual meetings,” added Kreider. “In retail, the big box companies have done well while the mom-and-pop stores have closed. Expect shuttered stores to be converted to medical office and wellness centers, while regional malls are redeveloped into everything from mixed-use retail, office and residential centers to warehouses.”

Overall, most commercial real estate professionals (75%) believe that the COVID-19 vaccine will be the top factor in the market bouncing back, followed by the recovery of the global economy (49%) and the U.S. election (44%).

“All in all, commercial real estate should have a strong year in 2021 as the more durable sectors continue to perform and the harder hit property types start to recover,” said Kreider.

Kreider recently discussed some of the opportunities and challenges facing commercial Realtors® with PAR CEO Mike McGee.