2020 was a volatile year for commercial real estate (CRE). The market was strong early in the year. But when COVID-19 hit, the global economy was blindsided—including CRE markets. Many industries began to see a ray of hope for recovery by the end of 2020—CRE, however, wasn’t one of them.
While commercial real estate was negatively impacted across classes, the pandemic allowed for some innovative thinking—for starters, more affordable rent. Efficient communication, form submission, and payments became just a click away as nearly every industry streamlined and took business online.
The pandemic’s effects may remain for some time—but CRE will eventually recover. The road to recovery will be difficult. However, this also means that opportunities will soon swarm for both business owners and smart investors. Knowing the latest stats, trends, and predictions for the coming years can help you make more informed decisions—and make the most of the CRE market.
Let’s take a closer look at some key CRE data that brokers should know about.
9 Commercial Real Estate Market Statistics Every Broker Should Know
According to a study by the National Association of Realtors (NAR) conducted in October 2020, comparing pre-pandemic, first-quarter stats to October readings, NAR found:
- Increased missed, late, or partial rent payments for residential apartments (53%)
- More missed, late, or partial rent payments for office, industrial, and retail spaces (54%)
- Greater landlord concessions made for current tenants (65%)
- Increased leases in suburban districts versus business districts (43%)
- More demand from individuals for flexible office space (51%)
- Increased demand from enterprise firms for flexible office space (43%)
- More companies leasing/moving into smaller offices (62%)
- Increased short-term leases (59%)
- Greater repurposing of vacant spaces, such as unused malls (52%)
Also, the NAR study uncovered another interesting bit of information—year-over-year commercial leasing volume trends. The worst-hit quarter for 2020 (Q2—down 4%) was still no match for the losses in 2008, which saw commercial leasing volume take a 28% nosedive.
3 Commercial Real Estate Market Trends Every Broker Should Know
In addition to the above CRE statistics, here are some trends uncovered in the world of 2021 commercial real estate:
1) Increased technology implementation
In an effort to better understand what’s happening in the world of commercial real estate due to the pandemic, CRE organizations are adopting technology at a faster rate to study:
- The evolution of behavioral trends
- Establishing more secure spaces
- Ways of increasing efficiency
- How to better recognize and address asset and portfolio challenges and vulnerabilities
It’s important to familiarize yourself with this type of research findings, as these trends will undoubtedly impact all aspects of commercial real estate. Understanding the emerging trends can help you offer your clients a better overall experience, resulting in higher sales and more transactions.
2) The shift to working from home
Also due to COVID-19, more industries have sent employees home to perform their duties. On its face, it would appear that the days of office work died in 2020—but actually, there are plenty of opportunities for commercial office space never before considered. The vacancies in higher traffic areas mean there’s never been a better time for CRE owners looking to expand their reach to make a move.
As briefly mentioned above, the shift to work-from-home created a struggle for both companies and employees. People not used to conducting business from a home office drove the demand for flexible, co-working spaces. Due to uncertainty as to when organizations could expect to welcome employees back to the office, many companies no longer needed large office spaces and instead turned to short-term, smaller square footage leases.
Many companies still await a full return to the 9 to 5 in-office workday, but that doesn’t mean the days of the office are dead. There are many reasons why having a physical office is still important. Working in-office offers employees more space, the ability to work together on projects, and increased efficiency and cooperation. Business owners recognize the need for affordable office spaces and brokers should keep this in mind when presenting investment options in 2021.
3) The boom of e-commerce
Online sales were already growing in the years before 2020. The pandemic served to cause a spike in businesses transitioning to e-commerce or strengthening their previous online offerings. Retail establishments and third-party shipping partners have grown or optimized their warehouse capabilities. With this shift, however, also comes an adaptation in inventory models. Many companies have always taken the just-in-time approach to inventory, whereas now businesses have adopted a just-in-case inventory model to help prevent goods shortages, such as the toilet paper fiasco in 2020. This shift in inventory modeling caused by the boom of e-commerce means that many online retailers will need larger warehouses. Investors can take advantage of this increase in CRE leasing opportunities.
Predictions for 2021 in Commercial Real Estate
As evidenced by daily news outlets, the threat of the pandemic isn’t over yet. Making predictions for commercial real estate’s future is spotty at best. But vaccination rollouts, potential future stimulus, and upcoming, recurring child tax credit payments, signs that point to a CRE market recovery are well underway.
The American Rescue Plan
The passage of a rescue spending bill for the country will play a role significantly. Small businesses will be able to sustain operations as a stimulus could be a potential way of expanding into additional areas of commercial real estate. Savvy CRE investors should watch for opportunities with small businesses.
Large corporations still have millions working from home
This will likely impact the market for office space but it significantly depends on working standards as we progress through 2021.
Brokers should direct investors to office space real estate investment trusts, or REITs, for long-term growth. Those who have a firm grasp of the industry can consider deals on leased office space. Many factors play a role, such as overall vaccination rates and the restoration of travel—both of which could mean an economic revival for late 2021 into early 2022.
Right now, industrial markets look well, especially those in the warehousing and network infrastructure sectors. Be on the lookout for these investment opportunities to increase later in 2021.
Final Thoughts
The pandemic has stirred much uncertainty concerning the CRE market. Facing this won’t be easy. But there are still many investors involved in commercial real estate despite issues with in-person visits, assessments, or the signing of contracts. Look toward the sectors that have maintained stability and performed well—that’s where investment opportunities truly lie.
ProspectNow can help you uncover these properties with our special, algorithmic data on likely sellers. We’ve been helping commercial real estate agents, brokers, and investors just like you since 2008. Reach out to see how we can boost your numbers for 2021.