Crosstown Commercial / March 1, 2021
6 Challenges That Commercial Real Estate Investors Will Face in 2021
Though early 2021 comes to us on the tail end of what was quite a notable and not so good year in history, it would appear that we might be in for better times. Most professionals, regardless of industry, or hopeful and optimistic that the second half of 2021 will be when we see the light. And this is the case for commercial real estate.
Both multifamily and warehouse properties performed well in 2021 despite the many challenges that faced the retail and hospitality industries. But what should investors in commercial real estate expect in the coming months and for the rest of 2021?
We’ve put together a list of six challenges that we think the industry will face.
6 Challenges for Commercial Real Estate in 2021
- The warehouse industry will lead the success story, particularly with the online retail surge. As eCommerce and online shopping become a way of life for more and more Americans, there will be a demand for warehouse space that allows retailers to get products to their customers faster. Commercial real estate investors will need to keep their eye on population growth to determine where the next demand will be.
- Depending on the locale, we believe that multifamily apartment developments can continue to show strong growth, particularly in tertiary markets. As many renters are leaving for the suburbs, intent to purchase homes and take advantage of historically low-interest rates, this will lead to a decline in rents for units in larger cities. For this reason, landlords will be challenged in determining how to handle renters that are in default or are otherwise behind in their rent payments.
- As many companies continue to learn that employees can be highly effective and efficient when working remotely, office buildings will continue to see fewer in-office workers. It is anticipated that offices will see at least a 15% reduction in in-office staff, with many workers to remain at home permanently. This change will also alter business for nearby restaurants, hotels, and coffee shops. The airline and hotel industry will also experience changes as a result.
- As we all know, the restaurant and dining industry was hit extraordinarily hard in 2020 as government-mandated shut-downs kept patrons out for months on end. It took significant time and resources for many restaurants to change their operating procedures to continue in a take-out and delivery-type fashion. It was too late for some, and as a result, nearly 110,000 restaurants across the nation permanently closed.
- The hotel industry experienced quite a shake-up, too, as worldwide travel came to a screeching halt. Hospitality industry experts and financiers have indicated that over $30 billion in outstanding loans will be due this coming year. And sadly, many hotels have not come back to life, and those that are operating, are operating at lower capacities.
- Finally, in the retail space, changes are continuing to ensue. The brick-and-mortar locations of the past are challenged with ways to get their products into consumer hands faster, especially for customers that no longer wish to walk through their doors. Investors that have latched on to retail buildings in the past will need to determine what to do with empty buildings with loans coming due.
Commercial real estate investors will need to practice creativity and think out of the box to cut expenses and determine strategies that will keep them afloat. As warehouse properties thrive and multifamily dwellings remain relatively stable, industry analysts predict a severe reduction, 25%, in retail space within the next four years. The best investors will find a way to identify new opportunities without imposing severe costs for others.
