The coronavirus outbreak has caused distress to many sectors. The commercial real estate sector is one of the most affected ones, leaving investors confused about the decisions they want to make.
Multi-family properties, in particular, are the kind of investment that takes a long duration to yield returns, from land purchase to development to leasing the properties.
Before investing in these properties, investors need to understand the outlook of commercial real estate. Here’s the bird’s eye outlook of commercial real estate 2021.
The Commercial Real Estate Economic Forecast for 2021
Since the economic recession of 2020 wasn’t a steep one but rather a sudden decline, the economic recovery is going to be nascent. The employment reports of May 2020 were surprising.
The slow and gradual hike in the employment rates indicates that businesses are back in operations and are hiring faster than expected. Since the employment rates were soon to catch up, the market for commercial properties and Multi-family properties alike is likely to rise too.
For new investors who want to invest in Multi-family properties, this might be a good time, considering the expected increase in tenant occupying rates. However, the downside is about financing.
Most commercial real estate loans have very high lending requirements, both private money lenders and banks included. If you’re looking to invest in Multi-family properties by loan financing, you might find it challenging.
However, if you have an excellent credit score and can manage a right loan – 2021 is not a wrong time for Multi-family property investment. The lending rates are at their lowest right now, and coupled with an excellent credit score – the 2021 CRE outlook for you is quite promising.
The Fed’s quantitative easing policy of buying commercial and residential mortgages
The Fed’s policy of buying residential and commercial mortgages has helped keep the mortgage rates very low. Thus, if you have the backing of collateral and a good credit score, you can get the best loans now at the lowest rates and long term periods.
The capital markets for Multi-family property investors look promising.
Following the Fed’s purchasing commercial and residential mortgages, the liquidity in the market has increased. The added liquidity in the market has enabled many investors to purchase loans at the best rates.
Since most business houses are reopening now, the construction and development projects will begin again – and it seems like the capital markets for Multi-family investors looks quite promising.
The resilient home prices likely to continue
It is quite surprising how the prices of homes have remained resilient even during the pandemic. Although some people had to rush out of their homes and find alternative options to live, resilient home prices seem like a good thing in the long run. The market is picking up already with a steady increase in mortgage applications.
As long as an investor has a good credit score or tangible collateral to back the loan – 2021 is a good time for investment. For the job going population, this might be the best time to take mortgages and invest, as the lending rates are the lowest.
The rise in Ghost Kitchens
Ghost kitchens were growing in popularity even before the pandemic; however, after the pandemic, it has seen massive growth due to increased online ordering. This lack of dining space olives restaurant owners to try out new concepts and deliver according to the demand.
This allows restaurant owners to only spend what is nida and thus avoid the trap of taking long-term commercial mortgages or signing on long-term property leases.
For investors who want to invest in a Ghost kitchen, this might be the best time. This is similar to the previous food truck revolution, and we can expect this to only grow in numbers in 2021.
A rise in CRE tech
Property tech is an ever-growing industry, as these are designed to increase asset management efficiency and the construction of properties. While there is a rise in technology every day and for every industry, the real estate sector in the United States has been relatively stagnant for the past few years. This is when CRE in the United States is going to see a massive shift towards property tech.
It must be noted that this check efficiency is not only concerned with the commercial real estate property management but also in various other forms like newer and better construction materials and designs. Things like new fab construction are here to last as they cut down on costs and reduce the timelines.
A rise in multi-family property conversions
Converting other properties into multi-family properties has been prevalent in the commercial real estate sector for many years, and it is only rising since 2020. With the construction costs increasing – more and more investors are trying to convert their commercial properties into multi-family residential properties.
Malls, office buildings, and factories make ideal candidates for such multi-family property conversions and can yield great returns in the long run. These are incredibly cost-effective, and the shorter timeline period is an added advantage as investors can expect cash inflows very soon after the conversion. This will reduce the cost per door and thus add up to the property’s net profit value.
The markets seem to be gathering traction in the South East.
As an investor, it’s always important to re-evaluate the markets before investing. Post pandemic – there was a rise in the 18-hour cities, and here are some of these cities which are likely going to see an increased demand for multi-family properties.
- Salt Lake City, UT
- Austin, Texas
- Nashville, Texas
- Charlotte, Texas
- Durham, North Carolina
- Seattle, Washington
- Denver, Colorado
These are the 18-hour metro cities that are likely going to see an increase in the demand for commercial properties including multi-family property. These are some of the best markets you can invest in the year 2021. If you have a good credit score and can manage to find a mortgage with reasonable terms – this might be the best time for you to invest as the mortgage rates are at their lowest.
Class A office spaces are not here to last.
Post pandemic, most of the employees have shifted to work from home or work from anywhere modes, and thus this might not be the best time for you to invest in class A office spaces. Although there has been a steady increase in the demand for coworking spaces and work cafeterias, class A office spaces see a rapid decline. Experts believe that investing in class A office spaces in 2021 is somewhat risky.
Suppose you have already invested in class A office spaces. In that case, there is nothing to worry about it, though, because class A office spaces are not here to completely disappear as there is always some beautiful synergy in having people work together in teams is not going to disappear.
Multi-family property investments will continue to grow.
Multi-family property investments have seen a rise since more and more people are getting more comfortable with renting than owning spaces. Besides, the baby boomers population who are likely to retire are choosing to stay together in communities in multi-family property rather than live in suburban areas.
Affordable housing is very likely to be the next big wave in the commercial real estate property market. Thus, if you consider investing in multi-family property – this might be the best time for you, provided you have adequate capital in hand or have a great credit score.
Thus the overall outlook of commercial real estate 2021 isn’t very bad after all. While the pandemic has caused distress in the commercial real estate market – it is not one from which we cannot recover from. As an investor, if you are informed about some right investment decisions and avoid risky investments like class A office spaces, you should be well covered.