The year 2020 has been a transformative year for almost every industry. The effects of the same have been seen in the commercial real estate sector. The covid-19 pandemic has paced many changes that were already underway and now forced tenants and investors to rethink the way they use the space and the business runs.
For 2021 and beyond, it is pretty unclear which of these changes will stay strong while immediate reactions to the pandemic, but we must not ignore them.
If you are an individual investor hoping to allocate capital to commercial real estate assets, then there are numerous emerging trends that you must be aware of.
With proper knowledge, you can make the best of your investment.
General Commercial real estate Trends for 2021
The real estate sector has significantly changed during the lockdown phase. Here are the top expected general trends that investors will see in 2021.
Multifamily will continue to grow during economic distress, and housing is a primary need that individuals prioritize. Because multifamily properties are a housing option with the lowest entry barriers, there will be a great demand in the future.
However, things might be different in reality. There is ample evidence that the rentals continue to abandon the properties in urban areas for the additional space and lower rental options available in the suburb.
Besides this, affordable housing is still a significant concern as stagnating wages and increased rental prices reduce affordability in most areas.
1. The interest rates will remain low.
Intending to stimulate the US economy during such distress, the Federal Reserve has reduced interest rates to all-time lows.
Besides this, it is expected that they will maintain these low levels of interest in the coming year 2022, even in 2023. This means that the interest rate forecast seems favorable in the future, which will benefit borrowers willing to access capital markets.
2. Strong demand for industrial properties
There has been a significant increase in demand for E-Commerce platform purchases. However, the stats show the need for last-mile delivery will still be a substantial source of interest in the industrial sector.
As per the CBRE research, there will be a demand for 1.25 million square feet of warehouse space for every $1 billion spent in total e-commerce. Given how 2020Q2 eCommerce sales increased to 44.5% than the percentage in Q1, the demand is still expected to remain strong. Some researchers mention that there will be about 250 million SF of industrial space will be occupied in 2021.
3. Retail properties will change.
No other commercial real estate properties have changed more than the retail space. The pandemic has dramatically altered the shopping behavior of the consumers and the behavior of the retailers. Owing to this response, the changes will expand offerings and differentiate the shopping experiences.
4. Retail Commercial real estate Trends for 2021
While it is pretty evident that the retail shopping experience will change tremendously, there is some degree of uncertainty about it. The biggest question is, will retail enter post-panoramic new normal or go back to the same old things. Although there is still some time to answer these questions, there are five trends that investors must be aware of.
5. Omnichannel sales
The retail business is no longer dependent on the storefront for generating sales. The shopping experience is now optimized for the digital world. This means the retailers now must go through both the online channels and storefronts. This requires a significant investment in the digital platforms and an expansion of the traditional sales strategy.
6. The increased importance of the stock room
To fulfill all the orders coming from multiple modes, the retail, especially the smaller ones that love centralized distribution, will have to convert sales floor space into a small stock room.
This place will be occupied to pull back and ship all the orders coming in through digital modes. Besides this, they can also use additional space to manage the local pickups. This shows that there will be a great demand for storage space and stock room in the coming time.
7. Increase spacing and cleanliness protocols
At least for the coming time, it is anticipated that the consumers will expect an enhanced wellness and safety protocol for the minimizer to reduce the risk of entering a public shopping space. The precautions will vary depending upon the property type, market, and store. These things will be expected to include disinfecting shopping carts, regular cleaning, credit card keypad, upgraded air filtration system sanitization, etc.
8. Increased use of augmented reality for sales
Given how the current trends focus more on millennials, the advanced retailers are upgrading their game to augmented reality as a part of the Omnichannel sales strategy. They are making use of the technology to allow the consumers to try on the clothes virtually.
The strategies are being supported by the universal presence of tablets and smartphones. Research shows that AR in sales is relatively safe during these pandemic times. Also helps reduce return issues.
What will the trends mean for the post covid world?
It is pretty challenging to determine the sustainability of the majority of these commercial property trends. They appear to be short-term.
But the question is how things will be in the next 3 to 5 years? For instance, with the workers be happy to return to the office buildings once the pandemic is over?
From a real estate investment standpoint, it is essential to return to the fundamentals of cash flow analysis. This will ensure that the tenants in the future will have the financial resources to make the rent payments and have an excellent economic life cycle.
In addition to this, it will be essential to evaluate the business models to ensure It stays consistent with the emerging trends.
While from the development point of view, the builders must consider these trends and rethink how they will renovate or build the space. For example, what extra precautions will they take to boost the sales in a store?
While keeping in mind all the safety precautions, those who will spend time thinking about the trends will have a better chance to take action and ensure high demand for their assets.
Conclusion
The covid-19 pandemic has brought in a significant change in the commercial real estate sector. It is quite a challenging period for every business to survive. They need to take proper measures to ensure success for the investment.
Given how complicated and risky the commercial real estate loan sector is currently, it will be beneficial to have professional support.
Private Capital Investors is one of the leading firms you can consider for help. They have years of expertise in helping the investors get the required funding and benefit from the available market condition.
Consider contacting them to get the help you need with your investment during such a tough time. For sure, their professionals will bring forward great deals and offers that will be beneficial for you.
