Now that 2020 is in our rearview mirror, it is a good opportunity take a moment to reflect on what was unquestionably an unprecedented year when COVID-19 impacted nearly every industry across the country, including commercial real estate. Shutdowns due to the coronavirus pandemic caused a large portion of employees to work from home for much of the year.
Many businesses and property owners found themselves negotiating with both tenants and lenders on rent relief and loan modifications, as the economy stalled. While the pandemic accelerated trends that were already taking place in retail, it also upended strong momentum that had been experienced in the office and hospitality sectors, as well as urban markets. These trends will likely continue in 2021 and reshape what buyers, owners, tenants, and residents may ultimately want to occupy.
The national Coldwell Banker Commercial team recently met with local leadership and real estate professionals from around the country to discuss micro and macro market trends for the coming year. The group covered an array of asset classes, user types, and investor profiles ranging from private investors to users of all property types, and examined factors expected to drive the recovery in commercial real estate markets ahead.
Those collective insights are shared here in the first of a three-part series will highlight what has been learning from the past year and point to opportunities ahead for commercial real estate investors, owners and managers. We invite you to check back each week for additional posts.
2020 Lessons Learned
The pandemic expedited the declining demand for traditional brick-and-mortar retail, especially for enclosed malls and department stores. At the same time, it forced consumers to adopt online shopping more quickly than they ever planned.
As with any economic disruption, there are winners and losers. While the coronavirus outbreak halted the hospitality industry with widespread hotel and restaurant cancellations, it spurred demand for industrial space primarily to support distribution and storage. Freestanding retailers, primarily those with drive-thru’s, as well as net leased office space, also held up exceptionally well compared to actively managed retail.
Dan Spiegel, Managing Director of Coldwell Banker Commercial, says, “The sudden shift to work-from-home created new expectations about flexibility that cannot be undone. People are making new choices about where they want to live, how and where they want to work; and the massive deployment of remote work technology platforms has only accelerated this push.”
While the country waits for a widely available vaccine, Coldwell Banker Commercial expects the recovery in 2021 to be led by industrial, grocery retail, multifamily, land, single-tenant net leased, and drive-thru retail properties. The leasing of small office spaces will be preferred over larger ones and tenants will look for flexibility in lease terms.
Secondary and tertiary markets will grow, echoing a current preference about where to live. Vacant malls will be repurposed for nontraditional tenants as obsolete retail space is recommissioned. The new administration in Washington D.C. will be charged with reducing economic uncertainty related to combatting COVID-19, bringing back market stability, including attracting foreign capital, and steadying the job market.
Spiegel says, “A recovering economy paired with continued low interest rates is expected to help sustain the private investor market and may work to push commercial real estate asset prices higher in 2021.”
The three-part series by Coldwell Banker Commercial continues next week. The second post will look at the property types that are performing at peak levels, as well as those not faring as well.