It looks like 2021 is shaping up to be a mixed bag for commercial real estate. While some sectors have managed to survive and are starting to recover from the sucker punch of 2020, others still have their work cut out for them. Let’s break each sector down, starting with the strongest contenders.
Warehouses and Distribution Centers
This portion of commercial real estate will rule the roost going into 2021. New investment opportunities will be hard to come by, but if you’ve already got an iron in the fire, you’re in luck.
Warehouses are still trying to catch up with the astronomical demand for e-commerce, manufacturing and delivery as consumers continue to shop from home. High rent and low vacancies mean investors will see plenty of return.
Multi-Family Real Estate
Housing is essential, especially during a pandemic. Rent control laws enacted in several states are projected to spread across the U.S. Low interest rates will create more manageable rent prices and maintain a demand for affordable housing.
The shift toward working from home created a larger supply of office space as tenants try to reduce their physical presence. Like apartment buildings, there is still a demand for offices, but the density will likely decrease.
Vacancies will make it difficult for landlords to negotiate leases as rent prices continue to drop. Investors may want to cut costs, but the need for digital solutions to accommodate remote work, daily operations and health measures will increase expenses.
Malls and Hotels
This CRE sector took the biggest hit in 2020 and will likely struggle through the first half of 2021. While hospitality companies are expected to recoup 50% of their revenue this year, the industry may not recover for several years. The $30.9 billion in overdue hospitality loans may also mean an increase in hotel closures this year.
Brick-and-mortar storefronts continue to be the hardest hit sector of commercial real estate. More online shopping means empty properties. And stores are likely to dry up cash reserves, resulting in more defaulted loans in early 2021. However, both hotels and malls offer cheap opportunities for CRE investors. Furthermore, the distribution of the COVID-19 vaccine may cause a resurgence in demand for physical storefronts.
Have a great weekend,