The pandemic year was an unprecedented one for the world, and all business verticals suffered setbacks in their own ways. The real estate industry had its share of woes during 2020, but there’s new hope this year with vaccine rollouts being in full swing. While residential real estate is already riding high, things are different for the commercial segment. You can well imagine the impact of the lockdowns on properties like hotels and retail. So you cannot expect the market to be red hot in the new normal. Here are some insights on how things will be different for commercial real estate in 2021.
A Retail Revamp Is on the Horizon
The pandemic brought a disruptive shift for retail as owners had to move from brick-and-mortar stores to e-commerce. Even as things inch towards normalcy, shopping habits have changed, and consumers still prefer buying online. As a result, the demand for commercial real estate has shifted towards industrial and last-mile logistics facilities. Retail properties may not see a boom in the foreseeable future as groceries, electronics, and medication are likely to embrace the doorstep delivery model for the long haul.
Comeback for Urban Offices and Apartments
When the virus first hit, people moved from expensive cities to the suburbs to save on rentals and stay financially afloat. The remote work model came as a blow for commercial offices. Rental spaces went vacant, and sales took a nosedive. However, offices will reopen in 2021, so things will look up for commercial real estate. The focus, however, will be on affordable spaces as business and personal finances are still tight. Business owners and professionals want to cut expenses during the recovery phase.
Flexibility Will Be Important
While the situation may improve in the year ahead, the virus is still playing a fun game. It looks under control at one point, but resurges as a new strain or repeat wave out of the blue. Businesses planning to reopen will look for flexibility, with leasing taking precedence over buying workspaces. They may also want to understand the commercial lease buyout option even before getting into a contract. It enables them to quit the lease early if the situation makes it hard to continue.
Asset Class Winners Will Emerge
The industry will also witness an imbalance in growth as asset class winners will emerge in 2021 and beyond. Life science, data center, industrial units will witness an increase in value, while retail, hotel, and office prices will continue to be at the suffering end. But the transaction volume in favorable sectors is likely to be lower than usual. It will still support higher pricing because of a rise in investor competition. Those looking from an investor’s perspective should stick to winners because they will stay ahead in the coming years.
Without any doubt, commercial real estate in the new normal is not going to be the same. But things aren’t as bleak as they were in the last year, and an uptick is just around the corner. It is crucial to pick and choose wisely, whether you are a consumer or investor.