2021: A New Look for Commercial Real Estate
Commercial real estate experienced a year like no other in 2020. With workers at home, office buildings are sitting vacant. And with the high unemployment numbers, some rent is not getting paid at all, or people are asking for a forbearance. The traditional retail mall and the hospitality industries have been decimated. But there has been some good news: some commercial real estate has become a desirable commodity because of the expanding need for space in the ecommerce industry. As 2021 begins, the unrest of 2020 has not abated, and 2021 will be a year of big changes for commercial real estate.
Up to the Minute Trends
As the pandemic has raged, some businesses, just like some people, were affected more than others. “Continuing uncertainty about the pandemic froze transaction deal volume in 2020 and put significant pressure on property types like hotel and retail,” said Victor Calanog, head of CRE Economics for Moody’s Analytics REIS. There has definitely been a “hurry up and wait” vibe to commercial real estate since last March.
The e-commerce sector has experienced a boon. In the third quarter of 2020, e-commerce comprised 14.3 percent of total retail sales, compared to 11.8 percent in the first quarter. Companies like Amazon have been able to balance the commercial real estate crisis by buying up vacant properties.
The New Administration’s Plan
The new administration, powered by Joe Biden, may prove a balm to the commercial real estate crisis, in the form of help directed at the states. With so many people unemployed, the states are not receiving tax revenue because unemployed people are not spending. And many commercial real estate owners are waiting on tenants who simply cannot pay their rent because there is no money coming in.
Biden’s three-pronged approach may help everyone. He is proposing that stimulus checks help those individuals who are out of jobs. This will stimulate the economy because the people will spend money and generating tax dollars. Second, there is a federal bailout of state deficits that could be put into effect. Last, amid whisperings and comparisons to FDR, Biden is planning new infrastructure projects that will drive down unemployment and also re-build tunnels, roads, bridges and subways. If contractors are working in the neighborhood, local restaurants and businesses will also benefit.
Resourcefulness is Key
Commercial real estate owners, business owners, and state and local governments need to get creative to make the most of their space and budget, and to solve some of these problems. For instance, malls with grocery stores have fared okay, because people still need to eat, but traditional malls are faltering. Turning malls into health offices is one suggestion to use all that space for good.
Another creative idea is using technology to run properties. JP Morgan asserts “Simplifying property management can reduce staff time and costs, provide more payment alternatives, and decrease payment times—all of which can help your bottom line.”
Finally, some companies have moved to the suburbs, citing lower costs and cheaper rent. But that also begs the question of what will happen to the empty offices in the city.
Sustainability: The New Kid on the Block
One element that might not be at the forefront of everyone’s mind as they struggle to collect rent or to figure out what to do with empty buildings is sustainability. But the Biden administration will make a big push to save the climate as they take office.
Commercial buildings negatively contribute to the environment. “Buildings account for nearly 40% of global CO2 emissions, so it's no surprise the Biden administration's vision includes reducing the carbon footprint of the U.S. building stock 50% by 2035 through incentives for deep retrofits.”
One study published in Energy & Environmental Science predicts that 80 percent to 85 percent of the US will run on alternative energy by 2030. Clearly this is a focus for commercial real estate as we go through the coming years.
The race for compliance and sustainability is a game changer for commercial real estate. Biden has picked Former Secretary of State John Kerry, who helped author the Paris Agreement, as the climate czar. The administration means business, and this will change the landscape of commercial real estate as everyone needs to get in compliance with the new mandates.
Clearly, 2021 is a time of great unrest and change for commercial real estate. Owners and renters need to be innovative to determine what is best for the empty buildings. And the new administration might offer some help in the form of bailouts and new jobs. Finally, all people need to focus on the idea of sustainability as they get ready to follow Biden’s lead.