The commercial real estate world is used to constant growth, partially thanks to the continued implementation of technology at all levels, and the unification with other CRE industries, across all property types.
More than a year into a slow expansion cycle, caused by the COVID-19 pandemic, the national commercial real estate markets are sturdy, but the optimism persists – simultaneously with caution.
Of course, investor challenges persist as well…
Brought about by generational changes, evolving occupier demands, and increasing specialization of product types – we will examine the 5 (and a few more) key trends that are likely to shape the national commercial real estate markets in 2021 and beyond.
We might also offer action steps for investors and tenants to capitalize on new opportunities – stay tuned.
P.S: Property types covered include: office, multifamily, industrial, hotel, retail, life sciences, and medical.
1. Technology is Reshaping Industrial Space
New companies that are resurfacing as modernized, will not only change the way many other companies acquire industrial space but will cater and shape new markets, relying completely on technological improvements.
These new companies seek to revolutionize industrial space and remain relevant in all the possible scenarios of the future, so we can expect to see increased demand for Class A industrial space in markets across the U.S, and globally.
2. Life Sciences Industry Demands Specialized Real Estate
As the life sciences industry grows, the need for highly specialized spaces able to facilitate research and development needs has also seen an interesting rise in demand and following quality.
Investors are considering adding alternative assets to their portfolios, such as life sciences properties that may add diversification and attain stronger yields.
Medical Retail is a Fast-Growing Market Segment
Health care jobs are also rebounding quickly. Medical office buildings are expected to see increased investor challenges, and interest – as demand for strong and stable health services grows.
These demands drove medical service providers to expand rapidly into retail spaces once occupied by malls, shopping centers, and urban storefronts.
The primary operator of this trend is the creation of a convenient experience for the patient/consumer. These retail-based medical developments have shown some key amenities that are very important for the success and the future of medical real estate:
- High visibility,
- Bigger parking possibilities,
- Convenient locations, near residential communities,
- Larger waiting rooms and offices.
3. Faster Deliveries Blurring the Lines of Different Industries
Older, close-in industrial spaces near urban centers often command rent premiums over functional space that is farther away. This presents opportunities for infill development and redevelopment at higher rents.
4. The Rise of Coworking Contributing to a Decline in Traditional Small Office Leases
As coworking and coworking spaces have grown to be more popular, the amount of transactions from tenants who work in less than 10,000 square feet of traditional offices has decreased.
While the decline is undoubtedly a challenge for traditional asset proprietors, it has also inflicted a slowing growth in the coworking and flexible office space sector.
The Technology Sector is Driving Creativity in Office Design
Tech firms are targeting millennials by locating their business headquarters in central business districts and often avoiding traditional office spaces.
These new coworking spaces are more collaborative, highly-amenitized, and their typically high-growth mode dictates a need for flexible lease terms and sustainability.
The self-built environment, with carefully selected locations and curated space, has become the company’s most potent recruitment and recognition tool.
Office and Multifamily Development are Increasingly Intertwined
Office spaces and multifamily assets have emerged as a symbiotic relationship in which each seems to have become at least semi-dependent on the other.
The multifamily assets have been a number one performer in the commercial real estate circles, especially in cities and urban cores, where they have been established and nurtured, as a combination of multifamily and office spaces.
The expenditure of their presence as leverage on the nearby workforce is a trend that’s likely to continue in 2021 and beyond.
Remote Workers Becoming Widely Acceptable
Many businesses have been forced to contend with new ways of working during the lockdown, mainly conducted by audio/video technology.
The push towards remote work has been circulating for two years now and represents a challenging future for both employers and employees.
5. Multifamily Investors are Gravitating Toward Secondary Markets
Over the past several years, the percentage of multifamily investments from the U.S into secondary markets has increased significantly, exceeding 65% each year, all the way since 2015.
The migration of people/families and corporations into secondary markets has been led by higher costs of living and supply-constrained primary markets.
Landlords have less motivation to stay in expensive markets now that quality employment opportunities can be found across the country, and that leads to the next big challenge.
Housing Becoming More Affordable
The number one issue facing commercial and multifamily real estate in 2021 is making housing more affordable. Especially millennials are finding it difficult to find affordable housing near their places of employment.
The situation is particularly decisive in west coast cities such as Seattle and San Francisco. With millions of individuals under 40 struggling with loans, debts, and rising healthcare costs – even modestly priced real estate can be difficult to afford.
This was a quick look through the list of biggest challenges in 2021 – which conspicuously did not contain “global pandemic” as the biggest challenge of all.
This should be a reminder that the unexpected will always be a challenge facing the CRE industry. Much about the year ahead remains uncertain, most of all the question:
When will things go back to normal for the industry?
And what “normal” may now mean?
Regardless, keep calm and IPG will look at some of the bigger trends on the horizon for you. Hopefully, a few of what you may not have considered for the year ahead is upon us.