2021 Commercial Real Estate Forecast

With the uncertainties that came from the multitude of hard-hitting events in 2020, the key theme for 2021 will be flexibility. From the shift to remote working to creative lease structures for retailers and restaurants, tenants and landlords will be seeking solutions that enable them to weather any potential storm that arises as we move with hope towards a calmer year ahead.

Oddly enough, one of the places that is set to see improvements is the co-working office sector. Despite the disastrous IPO attempt of WeWork, combined with the pandemic putting a stop to coworking. With the advent of remote working, employees are now in a position where they want the continued flexibility of either working from home or from a coworking office space. As such, Colliers International predicts that coworking and flexible work spaces could double or even triple in the next 5 years.

Traditional office spaces are expected to regain momentum and usage in the latter half of 2021, when workers can safely return. This is when the long-term effect of remote working will begin to come clear. Reports from CBRE predict that the value of face-to-face business interaction and collaboration will draw business back to an in-person model. Regardless, it is safe to say that there will be a significant portion of workers who prefer the flexibility to choose between remote or in-person work.

The industrial sector has fared well during the pandemic, due to the increased demand of logistics and warehousing facilities caused by an influx of online shopping. This sector will also see a certain level of flexibility, in the ways that smaller investors could take advantage of the growth. As e-commerce continues to surge, smaller facilities that can handle last-mile logistics will be needed, offering an opportunity for the smaller investor to get in on industrial growth.

Retail and restaurants are among the hardest hit sectors, and flexibility will be key in their comeback, which most likely won’t begin to unfold until mid-2021. Creative leases will be the new normal during this time, stemming from the tide of vacancies and bankruptcies that occurred as a result of the economic closures. Tenants and landlords need to come up with creative leases that enable the landlord to still collect some rent, while not completely wiping out the tenant’s bank account. This may look like leases where the rent amount is based solely on a percentage of gross sales received, rather than a fixed monthly price.

Additionally, because flexibility is key in an environment still fraught with uncertainty, tenants may seek leases that are shorter than in the past, especially office tenants. Renewals may also be more prevalent than new leases, as landlords seek to work with tenants to avoid vacancies. 

Expect early 2021 to be murky and unpredictable as the COVID vaccine is rolled out in greater numbers and a new administration takes office. Across the board, experts seem to predict that stability in all areas of our lives, not just commercial real estate, will begin to arrive mid 2021, as the turbulence (hopefully) settles down.

Leave a Reply