Commercial Real Estate Trends to Watch in 2021

Walt Disney once said, “Times and conditions change so rapidly that we must keep our aim constantly focused on the future.” 

Without a doubt, we are going through a period of unprecedented change. For many, this uncertainty may be a challenge – human beings are innately creatures of habit. But the reality of business means that change should be expected, and the best thing we can do is adapt to the extent of our abilities, keep looking forward, and embrace transformation. You will notice one overarching trend in the predictions below. Much of the commercial real estate (CRE) forecast for 2021 revolves around recovering from the COVID-19 pandemic, successfully navigating shifts, and leaning in to technology that will help you remain agile. 

Read ahead for some of the top trends and shifts to keep your eye on in the year ahead. 

 

Trend #1: The Migration to Satellite Cities

Satellite cities are small- or medium-sized municipalities outside or adjacent to a large metropolitan area. They differ from suburbs in that they have their own independent municipal governments distinct from the core city, as well as their own downtown business district with employment bases that can sufficiently support the residential population. Like suburbs, however, satellite cities do experience a fair amount of cross-commuting. Examples include Akron (a satellite of Cleveland, OH), Arlington (a satellite of Washington, D.C.), Cambridge (a satellite of Boston, MA), and Galveston (a satellite of Houston).  

These types of lower-density cities will experience faster economic recovery and see more immediate growth. Remote work means that people are no longer tied to major cities and do not have to commute into the city-center on a daily basis. However, while workers are relocating to regions with a lower cost of living, many still want easy access to the amenities of big city life. Tourism in these cities will also recover faster – people want to be away from dense populations in busy, major cities, but they don’t want to drive too far to make that happen. 

 

Trend #2: The Continued Evolution of the Office 

Gartner CFO survey found that 74% of companies plan to permanently shift to more remote work post-pandemic and expects 48% of employees to be working from home. CBRE predicts that office demand could be cut by 15% due to the shift to more remote work. 

While tightening their carbon footprint has helped many companies balance some of the costs and short-comings of COVID-19, the demand for office space will never entirely disappear. Instead, companies will adapt to this new environment by designing less dense and more social distance-friendly layouts, providing more job flexibility (such as a rotational program that puts employees in the office for only a day or two each week), and considering new locations further away from city-center that don’t require access via public transportation. 

 

Trend #3: Shifts in Rental Housing Demand

Renter struggles, tenant delinquency, and eviction were all hot topics in 2020, but at the end of the day, housing is always going to be a fundamental need. That does not mean, though, that we won’t see shifts in the types of properties that are in demand. For example, with remote learning, the need for student housing has plummeted. And with monumental job losses and millions of people running out of savings, the supply of lower-income housing will be even more critical. Even before the pandemic, many Americans struggled to find stable, affordable housing. Certainly, the health crisis has only exacerbated the issue. NLIHC reports that no state has an adequate supply of affordable rental housing for the lowest income renters, and the country will need over 7 million additional units to meet the current demand. 

 

Trend #4: The Requirement of More Industrial Properties to Keep Up with Consumer Demand

Warehouses, fulfillment centers, and distribution centers thrived in 2020 as they tried to keep up with increases in e-commerce demand and domestic production. That success is expected to continue in 2021. With high rent and low vacancy rates, this asset class is projected to be one of the fastest to fully recover from the economic impacts of the pandemic. 

After the shortages that we saw throughout the pandemic, from toilet paper and hand sanitizer to puzzles and inflatable swimming pools, there has been a marked shift away from lean inventory in order to de-risk supply chains and hedge against future disruptions, creating an even greater demand for industrial space. 

 

Trend #5: The Need to be Clean & Distanced

One lasting behavioral shift from 2020 will be the need for sanitization and social distancing. Commercial properties will continue to install features such as automatic doors, touchless in-store hand sanitizers and sanitizing wipe dispensers, and contactless credit card machines. Retail units may transition into “dark stores,” where retail sales are fueled by e-commerce, contactless shopping, curbside pick-up, and same-day delivery instead of pedestrian traffic. And more restaurants may expand into “ghost kitchens,” which provide takeout and delivery services instead of dining rooms and front-of-house services. 

  

Trend #6: The Strategic Use of CRE Tech 

The uncertainty created by COVID-19 has highlighted the need to be agile in an ever-changing market, and forward-thinking firms have recognized the role CRE tech plays in that strategy. Deloitte notes, “The pandemic has created a greater sense of urgency for CRE companies to increase technology usage to drive both top- and bottom-line growth.” Solutions like asset management software provide quick and easy access to the data and insights you need to effectively track performance, identify new market opportunities, and make informed decisions that will impact your business and your portfolio.  

The pandemic threw the commercial real estate industry, the economy, and the world into uncharted territory in 2020. But in the year ahead, there are plenty of new and unexplored opportunities, from emerging retail and restaurant models to rising geographic locales. The commercial real estate industry has proven itself to be resilient in the past, and experts can see a light at the end of the tunnel. This economic recession is looking to be fairly short-lived, with the market expected to stabilize in the second half of 2021 and make a full recovery by the end of 2023. Says Federal Reserve Board Vice Chairman Richard Clarida, “[The COVID-19 downturn] was by far the deepest one in postwar history [but] it may go into the record books as the briefest recession in US history.”  

Request a demo to learn how Lobby CRE can help your firm prepare for market shifts.