As most people know Commercial Real Estate market is under huge influence after the global pandemic. As businesses open again, owners are being forced to make tough decisions, such as whether or not they should continue to rent office space.
Below, you can see what might influence potential investment and real estate deals in 2021 and beyond, and how you as a potential or current investor can prepare.
1. Higher Demand
The commercial real estate market will continue its growth for the next half of the year fueled by low lending rates and inflationary pressures. Owners of investment property will try to cash out while the markets are hot. Demand for investments properties will continue to rise in the secondary markets as investors are looking for high yields.
2. Increased Office Vacancies
For most offices, the main question is the lease renewals. Unemployment is still up even though the economy is coming back slowly. People in most states are working from home which makes them relocate. It is most possible that the majority of stable companies will renew their leases but swap them for smaller space requirements which will increase vacancies in many areas.
3. More Demand And Less Supply
There is more demand for commercial investment properties than ever before with less supply. High-net-worth people are buying real estate to fudge against inflation and take advantage of the low-interest rates. However, the main focus right now is on commercial properties due to the scarcity of residential properties which leads to more competition for investment opportunities.
4. Greater ESG Impact
One of the most primary factors is the influence of environmental, social, and governance ( also known as ESG) on the market. It is impacting the tenants, the space they want to rent, and their eagerness to go back to the office. It is affecting access to capital markets to increase equity and debt.
5. Steady Increase In Capital
The availability of capital is one of the most important aspects that has kept specific commercial real estate sectors thriving through the pandemic. History shows that in past recessions, there was a lack of capital. During the pandemic recession, there was an abundance of available capital for particular types of investments including industrial, multi-family, self-storage, and health science real estate.
If inflation continues to remain high or even grows further, the Fed will be enforced to act and increase rates. It has not been determined yet whether the raised inflation nowadays is temporary or is here for the near future. It is possible the supply chain issues will work themselves out and make inflation go down, but it is still unclear.
7. Shifting Tenant And Resident Expectations
There are shifting tenant and resident expectations for commercial real estate. As consumers expect the same customer experiences that they used to get from familiar food delivery apps or stores, commercial real estate leaders will have to accommodate to meet those expectations. This will empower groups that adapt faster to stand apart from the rest, requesting greater market share and premiums.
8. Retail May Suffer
Most likely post-Covid office building space may grow as companies adopt a flex work program. The building vacancies will increase due to the lack of need for large spaces to house employees. Retail in some specific areas will suffer as fewer office workers bring fewer people to restaurants and shops in business areas.