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An Upturn for Commercial Likely in 2021, Experts Say

December 11, 2020

A panel of commercial real estate experts, gathering virtually Wednesday as part of the National Association of REALTORS®’ 2020 Real Estate Forecast Summit, agreed there’s reason for optimism across commercial sectors in 2021 and beyond.

Noting that the industrial and land sectors are thriving, thanks to booming e-commerce sales and population movement, the panelists focused on sectors with question marks hanging over them—multifamily, office, retail, and hospitality.

Multifamily: Don’t Count Out Cities

The apartment industry has shown a lot of resilience, said Jeanette Rice, head of multifamily research at CBRE. A large percentage of tenants are keeping current with their rent payments, she said, predicting the sector will continue to perform well. Igor Popov, chief economist with Apartment List, concurred, noting that one of the most remarkable developments of 2020 was how the pandemic-related population shift has “spread the love,” spurring growth in rental markets in the suburbs and metro areas outside the traditional urban hot spots. “I don’t think we’ll be seeing any articles about the death of rental in the suburbs any time soon,” Popov said.

Rice agreed that multifamily in the suburbs was likely to continue to thrive into 2021 but counseled those concerned about the future of cities not to count out traditional urban areas. Vacancies could spell greater affordability in high-priced markets like New York and San Francisco, bringing renters flocking back, she said. “Cities aren’t done yet.”

Office: Meeting Employees in the Middle

The flexible office environment and co-working, two trends that predate the COVID-19 pandemic, are with us to stay and can help stimulate innovation and growth in the office sector, said Tim Savage, professor at the New York University Schack Institute of Real Estate. The key to success is what he terms “optionality,” using the built space to give office workers choices, allowing them to be in the office full-time, part-time, or only occasionally.

CBRE’s research supports Savage’s contention that office workers are looking for flexibility. According to a recent CBRE survey, Rice said, 20% of employees indicated that they wanted to work from home full-time and 6% indicated that they didn’t want to work from home at all, leaving more than two-thirds who indicated that they wanted a combination of home and office work.

Employers are listening and are open to more remote work and greater flexibility, Rice said. Fifty-six percent of employers that CBRE surveyed indicated that they are considering flexible office space, two-thirds are considering some form of consolidation as a result of remote work, and one third are considering implementing a hub-and-spoke model with a central headquarters and geographically distributed satellite offices. Only 3% of employers in high-density city cores were considering fully vacating their current office space. “Companies are not thinking about leaving urban cores,” Rice stated. “No one is planning huge changes.”

Retail: Disrupt the Disrupter?

Even before the COVID-19 pandemic, Amazon was transforming e-commerce with warehouses that are marvels of technology and modernization and that blur the lines between retail and distribution, Savage said. The effects on retail were only hastened by COVID-19.

What might have been a slower, three-year downturn was compressed into eight months, Rice said. The path to growth will require new ways of thinking and doing business. “Retail will have to reinvent itself,” Rice stated. “But it can be done. There is still potential.”

Hospitality: New Possibilities

Recovery has already begun in leisure travel, and business-based travel will eventually follow, according to Rice. Interest in travel hasn’t gone away, and millennials in particular are eager to experience new places firsthand. “Leisure should continue to show growth in 2021,” she said. “Business travel may take until 2024.”

Apartment List’s Popov added that the hospitality sector has an opportunity to innovate by providing businesses with meeting spaces where home-based employees can convene. When remote employees need to meet in person, Popov said—leadership strategy sessions, all-staff meetings, conferences with high-level clients—companies can turn to hotels for employee lodging and for temporary meeting and office space. Catering to businesses outside of the usual conferences could open up a new revenue stream for the hospitality sector, Popov said, adding, “Remote work may actually accelerate business travel.”