Like nearly every industry, the Covid-19 pandemic has
rattled the commercial real estate (CRE) sector. As businesses reopen, owners
are being forced to make tough decisions, such as whether or not they should
continue to rent office space. Consequently, landlords and other CRE investors
may see a continued impact on their revenue stream.
As experts in their field, the members of Forbes Real Estate
Council keep their eye on growing industry trends that might influence
potential investment and real estate deals. Below, 14 of them share some
important factors impacting CRE investments in 2021 and beyond, and how
investors can prepare.
1. Higher Demand
The market for the latter half of the year will continue to
grow at its current torrid pace, fueled by low lending rates and inflationary
pressures. Investment property owners will try to cash out while the markets
are hot. Demand for investments properties will continue to increase in the
secondary and tertiary markets as investors seek slightly higher yields. - Eric
Shirley, Four Oaks Capital
2. Increased Office Vacancies
For offices, it’s the lease renewals. The economy is coming
back but unemployment is up, work from home is up and people are relocating. I
predict that most stable companies will renew their leases but flock to smaller
space requirements which will create vacancies in many areas. - Ken McElroy, MC
Companies
3. Changes In Federal Aid
We should watch closely how federal involvement in business
loans will develop. It is also likely that if inflation continues to grow, the
federal government will be forced to intervene on interest rates. Watching for
the changes in the Federal Reserve's economic outlook will help business owners
decide whether they should buy or lease commercial space. - Marco Del Zotto,
LIV | Sotheby's International Realty - Breckenridge CO
4. Wider Adoption Of Technology
The pandemic has put a real focus on the power of data, and
instant access to market intelligence is enabling smart investors to operate
outside of their existing asset classes and geographical regions. Wider
adoption of technology and a better understanding of market data will only
increase the demand on already limited stock availability. - Oli Farago, Coyote
Software
5. More Demand And Less Supply
There is more demand for commercial investment properties
than ever before with less supply. High-net-worth individuals are purchasing
real estate to hedge against inflation and take advantage of the low-interest
rates. With the scarcity of residential properties, many are looking to
commercial instead, leading to more competition for investment opportunities.
Time is of the essence now more than ever. - Catherine Kuo, Elite Homes |
Christie's International Real Estate
6. A Debate Over Office Space
The return to the office and the conditions associated with
pandemic measures are important factors. Think about what amount of space will
be required and will employees accept a return to the old office paradigm
versus remote working. Several companies are implementing mandates for vaccines
and could play a factor for many. - Michael J. Polk, Polk Properties / Matrix
Properties
7. Greater ESG Impact
The one important factor is the impact of environmental,
social and governance (ESG) because it's influencing real estate from every
perspective. It's impacting the tenants, the space they want to use and their
willingness to return to the office. It's impacting access to capital markets
to raise equity and debt. It's also impacting the value as more and more
cities, states and countries look at regulation to drive ESG. - Bradford
Dockser, Green Generation Solutions, LLC
8. Surging Investor Interest
Occupancy concerns, lack of rent growth and other
pandemic-related factors have put capital on pause. Now, capital from investors
and lenders flowing back into the market after a 15-month hiatus. Know that
when you find a deal you like, act quickly since the market is highly
competitive right now. - Lee Kiser, Kiser Group
9. Steady Increase In Capital
The availability of capital is one of the primary factors
that has kept specific commercial real estate sectors thriving through the
pandemic. In past recessions, there was a lack of capital. During the pandemic
recession, there was an abundance of available capital for specific types of
investments including industrial, multi-family, self-storage and health science
real estate. - Richard Lackey, City Commercial Real Estate, Inc.
10. Real Valuation
Real valuation remains remarkably problematic with what continues
to be oceans of available liquidity flowing from central banks. Without these
programs, I think we'd see more rapid adjustments in value reflective of
rapidly shifting consumer and digital staff patterns. Said differently, one
important factor is in many cases that CRE value is whatever a central bank
says it is at the moment. - Clark Twiddy, Twiddy & Company
11. Inflation
If inflation continues to remain high or even grows further,
the Fed will be forced to act and raise rates. It is yet to be determined
whether the current elevated inflation is temporary or is here for the near
future. It's possible the supply chain issues will work themselves out and
cause inflation to go down, but maybe not. - Nick Ron, House Buyers of America
12. Shifting Tenant And Resident Expectations
There are shifting tenant and resident expectations for
commercial real estate. As consumers expect the same customer experiences from
where they work and live that they can get from food delivery apps, etc.,
commercial real estate leaders will have to adapt to meet those expectations.
This will enable groups that adapt quickest to stand apart from the rest,
demanding greater market share and premiums. - Benjamin Pleat, Cobu
13. Increase In Federal Government-Sponsored Loans
The single most important factor impacting the commercial
real estate space is Federal Government-sponsored loans for businesses looking
to purchase their own space. With SBA 504 and 7(a) loans in the 3% range, it
does not make sense for these businesses to continue leasing space. If you are
not looking at this segment of the market, you're missing out on a hot
opportunity right now for brokers. - Sherman Ragland, The Realinvestors®️
Academy, LLC
14. Retail May Suffer
Be aware that post-Covid office building space may increase
as companies adopt a flex work program. The need for large spaces to house
employees will decrease causing building vacancies to increase. Retail in
certain areas will suffer as fewer office workers bring fewer people to restaurants
and shops in business areas. - Steven Minchen, Minchen Team
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