Challenges for commercial real estate investors in 2021

At the time of writing this article, the United States is amid discord on several levels. Many are optimistic with a challenging year behind us, and experts say the second half of 2021 looks to be favorable for commercial real estate.

Multi-family and warehouse properties performed well while the retail, restaurant, and hotel industries suffered significantly. What should commercial real estate investors expect for 2021? Will multi-family residential slide, more restaurants close, and warehouses continue their growth cycle?

• Multi-family apartments should continue strong growth depending on the location. Many renters are leaving the cities for the suburbs, so a decline in rents will continue in the major cities. Demand will continue to grow in the tertiary markets. The question yet to be answered concerns the renters behind in their rent. What are landlords whose loans are in default or coming due in 2021 to do?
• Office buildings will most likely experience a permanent 15 percent reduction in occupancy. Many companies are embracing the remote work setup for some employees. With only 85 percent of the workforce returning to the office, this could change the outlook for office investments and affect the restaurant, hotel, airline, transportation, and retail industries.
• Many shoppers can see retail changes even before 2020. Still, as many of us embraced online shopping, the “brick and mortar” store has come into question. We should continue to see a shake-up in this industry. Investors holding retail buildings are questioning what to do with an empty building and a loan coming due?
• The warehouse industry is the success story winning with the growth of the online retail surge. Growth is to continue as e-commerce becomes entrenched in our lives. Industrial property investors need to follow the population growth to find where industrial development will continue to rise.
• Hotel industry experts say $31 billion in outstanding loans will be coming due this year. In contrast, many hotels have not yet come back to life. Experts agree most hotels, depending on location, will bring in only 40 to 75 percent of their expected occupancy. Many fear we could see many shut their doors.
• Unfortunately, the restaurant industry was hit the hardest in 2020 and continues to suffer in 2021. It does not seem to be getting any better until the second half of 2021. The estimate of 110,000 restaurants nationwide permanently closed. Most of these being independent restaurants. A negative ripple effect in the industries that support restaurants continues with the most significant impact on the employee.

It is painful to see all the workers hurt this past year and equally so the business owners. Commercial real estate investors will need to get creative with their properties to shave expenses to keep afloat. Still, many will not be able to, especially when their outstanding loans come due.

Warehouse properties will continue to thrive, and multi-family should remain stable. Industry analysts predict a 25 percent reduction in retail space by 2025, with the hospitality industry rebounding around the same time. The intuitive investor should be able to find opportunities, unfortunately, at the cost of others’ losses.