Commercial real estate trends to watch in 2021, Courtesy of Author, Mark Ortega
Commercial real estate trends to watch in 2021 will largely be the aftermath of the all-encompassing, show-stopping influence of the Covid-19 pandemic that has turned not only the national but also the global real estate market ‘upside down’ in 2020. Leasing and transaction patterns observed over the past few years encountered a steady rise at the beginning of 2020. However, industry professionals note that the virus threw forecasts for the year 2020 into complete disarray. Let us take a look at what 2021 has in store for commercial real estate.
Main commercial real estate trends to watch in 2021
The following commercial real estate trends are expected to be observed in the next year.
Brick-and-mortar shops and strip malls are struggling.
Warehousing and other types of distribution facilities have been experiencing greater developer activity due to the greater e-commerce demands in 2020. This trend is likely to continue well into 2021, especially given that brick-and-mortar shops struggle to make ends meet in the midst of Covid-19 lockdowns, general hygienic and social distancing measures, and increased e-commerce activity. Henceforth, many retail companies have switched to e-commerce as their main selling point, mostly due to the inability to pay commercial real estate leases.
Retail and restaurant rental activities are also unsteady.
Just as shops and malls struggle with paying their rental responsibilities, the Covid-19 pandemic has not been favorable to restaurants and other types of retailers. E-commerce had been expanding its influence at the cost of retailers even before the virus. However, online-based shops exhibited an unprecedented increase in profits since many nonessential shops and companies had to close down in the wake of the pandemic.
Some tenants have resorted to unconventional solutions to paying rent to stay afloat in 2021, such as paying rent in monthly installments that amount to a percentage of their total revenue until the global situation goes back to normal.
Warehouse leasing is a commercial real estate trend to watch in 2021
As mentioned above, warehousing has immensely benefited from the current shifts in large retail chains’ business operations. So, warehouse and industrial leasing have marked a significant rise in activity, with no indications of weakening any time soon. This is particularly characteristic of warehouse centers located around densely populated metropolitan areas.
This trend is especially true for e-commerce giants such as Amazon due to an increased demand for storage, dispatch, and delivery points. In fact, Amazon alone has extended its network by 100 new warehouse units in September 2020 alone to accommodate the upcoming Black Friday and Christmas holiday shipping demands.
Warehouse and storage facilities should continue to be in demand in 2021.
The future of the commercial office space sector is unclear.
Since many companies have been forced to switch to home office working, the office sector has been experiencing a reduction in rental agreements for the year 2021. Consequently, commercial real estate experts are divided when it comes to forecasts regarding the upcoming fiscal year.
On the one hand, it seems as if distance working could become prevalent in the following year with many companies adapting to government pressures to reduce the number of Covid-19 cases.
Many commercial properties have become vacant in the wake of the Covid-19 pandemic.
Otherwise, some experts predict that the current work-from-home regiment will not extend long into 2021, given its detrimental influence on companies’ work culture. This is good news for the commercial real estate sector, which seeks to backtrack the unprecedented number of office vacancies that have been the leading leasing trend this year. Other favorable forecasts include the predicted doubling of coworking spaces and other flexible office space locations in the next few years.
Shorter leases of office spaces are likely to remain the norm.
Given the precarious state of post-Covid-19 economic markets, tenants have expressed even greater interest in obtaining shorter leases than in the previous years. Considering this, it is highly likely that this caution will be guiding rental behavior in 2021. So, landlords in the commercial real estate sector will have to adapt to this trend with heightened flexibility and rental grace periods if they wish to compensate for long periods of commercial building vacancies that have marked 2020.
Accordingly, long term leases such as 15-year or 10-year rental contracts might become a thing of the (pre-Covid-19) past, with new rental agreements signed for shorter periods. Therefore, a business may need commercial moving services from gomovers.com sooner rather than later. Also, those who intend to switch back to working in an office will have to ensure the company they hire is compliant with all Covid-19 sanitary measures.
There is a high probability that lease contracts will be short-term rather than long-term in 2021.
Subleasing of commercial rental space is likely to ‘balloon’ progressively in 2021
One of the key commercial real estate trends in the last few months has been the sharp rise in the amount of commercial rental space available for sublease. In fact, to take Manhattan as an example, some market analyses have uncovered that the current leasing bubble has reached an all-time high in 2020.
Since most enterprises try to cut spending, the trend of retracting offers on extending their current rental agreements has been the key strategic move of companies attempting to backtrack some of the incurring losses they have experienced. However, more commercial office space available for subletting leads to a significant reduction in office rents, which could stimulate commercial rental activity, which has the potential to be one of the major commercial real estate trends to watch in 2021.
Author: Mark Ortega has extensive experience working in the commercial real estate sector as a leasing consultant for moving and self-storage companies. Understanding the erratic trends of the commercial real estate market has so far allowed him to accurately predict key trends in most US economies.