Reasons for optimism in commercial real estate

Author Ivan Smiljanic Read bio
Tags: commercial real estate covid 19 cre optimism
Date: October 12, 2020

Cautious optimism is a more appropriate phase. This phrase has been used for months in many industries, and commercial real estate is no exception. 

This year has brought many rapid and somewhat unpleasant changes and economic instability. But despite all those changes and challenges we continue to face every day, the commercial real estate industry still has some optimism left in it and good things to look forward to.

Industrial real estate stays strong

It seems like industrial real estate keeps thriving, even in the hardest of times.

Long-term investment demand for industrial real estate seems to have been very resilient during the pandemic, with cap rates staying relatively stable during 2020.

The pandemic has greatly advanced the trend of increased e-commerce penetration throughout the country, more Americans are shopping online than ever. This change in consumer spending has boosted industrial demand and is expected to continue to do so in the coming years.

But, E-commerce isn’t the only thing that is supporting the stability of the industrial sector.

E-commerce, combined with the tightness of the market entering the COVID-19 pandemic, should ensure that the industrial sector remains strong while the economy recovers. Those professionals who are watching the industrial real estate market closely expect the investor and pricing to hold for the future.

Data centers have also become very important, due to many people doing business from home and also seeking all kinds of home entertainment. Data centers are the heart of the internet and have proven themself to be essential to conducting business many times, as well as remote socializing. At the end of June, data centers were among top-performing public real estate sectors.

San Francisco skyline

Big deals are still being made

Even though the pandemic has significantly slowed down, well basically everything, big deals are still being closed despite the odds.

In the first half of the year, several pretty major deals have happened, and the big-deal strike continues even in October. 

In May, Matthews Real Estate Investment Services announced the sale of a multifamily property in San Fernando Valley for $11.65M!

Just in July, Chicago Title National Commercial Services brokered the sale of a $134,000,000 office development in San Francisco.

And recently, 1155 Bryant in San Francisco sold for $18.3MM!  

What we’re trying to say here is that opportunities are out there, you just have to spot them. It’s entirely up to you to be innovative and somewhat aggressive to see their true potential.

Multifamily remains fairly stable

Multifamily has proven itself to be a resilient sector, with its cap rates remaining unchanged in the first half of the year, with smaller pricing adjustments in some specific markets. 

We believe this is due to the sector’s strong core, before entering the coronavirus caused shifts. Investors are looking at the sector carefully and taking notes of the current trends, and the strength has been gradually accumulating while the economy continues to renew.

What the future holds

Commercial real estate despite all odds remains a desirable investment opportunity in some of its sectors. Plus, the hope and perception that we’re coming to the resolution of the pandemic caused the crisis, gives us some basis for much-wanted optimism for Q4.