Last year, the Coronavirus pandemic led to an unprecedented number of empty offices due to shelter in place orders forcing employees to work from home all over the world. While some employers are slowly, but surely, migrating back to their brick and mortar office spaces, it is highly unlikely that commercial buildings will be back at full capacity any time soon.
As a result of this shift in workspace needs, we will likely see shifts in commercial real estate needs through the remainder of 2021. Office space is still in demand, but with different types of amenities. Companies’ needs have evolved. For example, in pre-Covid-19 days, many businesses were looking for spaces with gyms, open lounge areas, and meeting rooms; however, the demand now is for indoor air quality, touchless technologies and appropriate distancing between office cubicles. This will likely force many property owners and developers to invest money in making properties more tenant friendly.
Additionally, with either mandated legislation, or heavy influence from the court system, lenders granted struggling business owners several months of forbearance in 2020. Market analysts predict that this year, many property owners who have fallen behind on real estate related debt will be forced to put significantly more money into their buildings, sell their buildings at distressed prices, or be forced into foreclosure, as there is roughly $430 billion in commercial and multifamily real estate outstanding debt expected to mature in 2021.i
In addition to the above-mentioned observations, here is a quick list of other commercial real estate trends we expect to see in 2021.
Interest Rates Will Likely Remain Low for the Remainder of the YearIn 2020 we saw record lows for mortgage interest rates. Most market analysts agree that the Federal Reserve will likely continue to accommodate borrowers this year to boost the economy until the effects of the coronavirus vaccine become apparent.
Migration to the Suburbs Will Continue to TrendCOVID-19 and the trend of working from home has led to millennials leading a mass exodus to the suburbs. As more millennials are getting married and having children, the downtown apartment trend has faded, especially since many families are looking for space to accommodate virtual learning and home offices. Many families are seeking more space, in addition to affordability, better and more affordable education, and access to nature and community connection.
Office Space Will Continue to Become AvailableEven though workers stuck at home are beginning to experience fatigue, isolation and trouble balancing work and family life, companies will most likely continue with work from home policies. As a result, some companies, mainly larger organizations, will attempt to shrink their footprints as a cost-saving measure. According to CoStar Group, corporate tenants put a record 42 million square feet of space on the office market in the second and third quarters of 2020.ii This trend is expected to continue; therefore, we expect commercial tenants to continue to put office space up for sale and lease throughout the remainder of this year.