Market analysis: What professionals say will drive CRE in 2021
According to the Real Estate Outlook study, Q42020 , commercial real estate (CRE) professionals are looking to a limited number of specific sectors for growth in 2021, namely e-commerce, medical facilities, and government activity. These sectors are seen as the economic drivers of CRE in 2021 and vividly illustrate the state of living and attempting to thrive in these pandemic times.
This is according to the outcomes of the NAI Global-commissioned research, undertaken by South Carolina-based Regina Corso Consulting. Regina Corso sought responses from CRE professionals across 30 US states and from a dozen NAI Offices in October 2020, with almost 160 NAI Professionals ultimately contributing to the survey.
Naturally, the bulk of respondents identified Covid-19 as having the most negative impact on the state of the market, not just at the time of responding but also “for the foreseeable future”. Other matters that remained of concern were unemployment, business closures, declining oil, and gas industry, decreasing property values, and the increase in the number of people working from home.
Despite the myriad of downward pressures, the report reflects a degree of buoyancy in market sentiment. It reads: “The Coronavirus is a terrible blow to our economy and way of life, yet the perception of its impacts – while still bad at 32% – is becoming more manageable. Or simply, we have grown accustomed to it.”
Over half of respondents (57%) said the “Amazon effect” was expected to have an even larger impact on their CRE markets; a third expected this effect to hold strong (33%) and only 8% said it would now have a smaller impact. Although named for the giant e-tailer, this trend also includes other grocery and retailers with significant online business.
This is in keeping with other research and reports both in the US and abroad that see e-commerce fulfillment and warehousing being a dominant drive factor in real estate markets, leading the report authors to deem e-commerce “an enduring trend”.
Contrasting office and industrial spaces
Other changes that can be traced back to the pandemic include increased flexibility on lease terms and even rent concessions. Some four in five of respondents said that they see landlords providing this flexibilitto attract or retain tenants, while a whopping seven out of ten said they are offering rent concessions in the office market. Only 6% said they saw rents increasing.
Combined, these reflect the partnership and collaboration that many CRE professionals have reported seeing shaping the spirit of landlord-broker-tenant engagement in the wake of the pandemic.
Towards the end of 2020, the data clearly showed that the industrial real estate sector was the strongest among the other property verticals, and the report shows that both agents and brokers believe the vertical will thrive over the next six months, with “82% of them stating the industrial market would remain hot”.
Over half (54%) of the survey responders said their respective industrial markets have already returned to pre-pandemic levels.
“CRE over the long term is resilient, with all parties seeing property of most kinds remaining a strong store of value, even in during tough times,” said Jay Olshonsky, President and CEO. “We believe we will see the interest bouncing back later this year,” he added.
- To read the full report, click here.
- To participate in the 2021 DNA of CRE survey, click here.
- To listen to a podcast with NAI Global President and CEO Jay Olshonsky on the future of CRE, click here.