Savvy real estate investors are constantly gathering and analyzing market trends to make wise business predictions. Trend analysis provides data-based evidence to help inform your strategic decisions for a competitive edge and prosperity in the commercial real estate market.
Most businesses experienced a rough time through 2020 as COVID-19 disrupted almost all sectors of the economy. The pandemic has a significant influence on today’s commercial real estate market. However, some of the changes we are seeing began several years back.
We’ll look at the latest trends in commercial real estate and suggest some investment opportunities you can seize.
7 Trends Influencing Commercial Real Estate in 2021
If you’re looking to invest in commercial real estate this year, below are some vital things to know.
Interest Rates are Low in 2021
The Federal Reserve will maintain low short-term interest rates throughout 2021. According to officials, interest rates will remain near zero until at least 2023. At least for now, no major bank has expressed an intention to hike interest rates in the United States.
This deliberate action will hasten the country’s economic recovery and encourage commercial borrowers to continue investing. Consider borrowing at this time to purchase commercial real estate to enjoy low annual percentage rates.
Distressed Property Sales and Rent
Most people thought that 2021 would be better economically than 2020, but the year hasn’t been promising for everyone. If you look at history, you’ll realize that recovery from a recession takes time.
As such, borrowers, especially those in the hardest-hit groups, will have a hard time getting back to business. For instance, the hotel industry will remain unattractive for the best part of the year as people continue social distancing. It will reduce the demand for such business premises.
Additionally, the lowest social-economic groups will struggle to recover, forcing some of them to close down. Large retailers like Walmart will have better chances of survival than small shops and local restaurants.
This disparity has spilled over to the commercial real estate market. Currently, there are many vacant mom-and-pop shops, leading to a downward trend in rent prices.
Plenty of Cheap Office Space
COVID-19 contributed to an influx of teleworkers as companies encouraged employees to work from home. A 2020 survey by Gartner revealed that a whopping 74 percent of CFOs were planning to shift some workers to remote work permanently.
Further, employees seem to be happier and more engaged since they started working from home. According to a recent study, 70 percent of workers reported more job satisfaction when working remotely.
With employees opting to work from home, there has been an increase in unutilized office spaces in many organizations. CoStar Group found that corporates added a record 42 million square feet of office space in the commercial real estate market within the second and third quarters of 2020.
Many corporate tenants are subletting their unused office spaces to reduce wastage. Consequently, office spaces have become readily available and relatively cheaper than in the past. It may not be the best time for investors to engage in the business.
Homeowners Want the Suburbs
COVID-19 has also accelerated the real estate market in the suburbs. One reason is the adoption of remote workforces by many organizations.
Traditionally, workers chose condos near their office buildings in cities to avoid long commutes. With the flexibility of working from home, employees are leaving smaller city dwellings for more spacious homes in the suburbs.
Pandemic-related lockdowns have also contributed to the rising demand for suburban homes. Families are finding downtown apartments congested and unsafe since they are spending most of their time indoors. They want more space and affordable amenities for their loved ones.
Besides being relatively larger and cheaper, suburban homes offer more outdoor space. Homeowners have also lost interest in some city attractions like malls and restaurants because they are either closed or running at partial capacity.
Affordable Housing Still a Concern
Millions of Americans can’t afford safe housing. According to the latest census data, the United States had about 580,466 homeless people in 2020. While homelessness was steadily declining since 2007, the numbers started rising again from 2019.
The condition may have worsened due to the coronavirus pandemic. According to the National Apartment Association, owners of smaller and Class C apartments have reported increasing delinquencies in their properties over the COVID-19 period.
Overall, many low-income earners are in dire need of better housing. You can consider investing in affordable dwellings for the community.
Endless Commercial Real Estate Opportunities in Sustainable Building
Many nations consider sustainability integral in propelling the planet toward green recovery sustainable wealth. According to the IEA’s report on world energy investment, the world injected $240 billion into energy efficiency efforts in transport, buildings, and industry sectors in 2019.
Sustainable building will intensify in 2021 and the years to come. Experts predict that the United States green building market will reach $99.8 billion by 2023.
Socially responsible investors can consider venturing into the green building market. If you don’t know where to start, try the education sector. It owns 17.2% of green buildings in the country.
SMEs to Present Commercial Real Estate Investment Opportunities
While some organizations are busy cementing work-at-home formulas, others want their employees back to the office the moment it’s safe. Examples are businesses that thrive on in-house operations.
The government is also keen to see small and medium-sized businesses back on their feet. The House passed the American Rescue Plan in March 2021, a coronavirus relief law that will benefit small businesses with $1.9 trillion.
Some SMEs might utilize the stimulus to expand their business premises. Industrial sectors like life sciences, warehouse operations, and network infrastructure have been doing well despite the pandemic.
If you’re a commercial real estate investor, stay hawk-eyed on businesses that might need new buildings and grab the opportunity. Consider leasing office space toward the end of the year or work with a real estate investment trust (REIT) for long-term gains.
New Commercial Real Estate Business Ideas
The economic disruption witnessed in 2020 introduced innovative real estate solutions that caught many by surprise. Let’s highlight a few business opportunities that real estate investors can implement this year.
Also known as PropTech, property technology focuses on digital innovations that ease asset management and increase efficiency in properties. As a real estate investor, you can use PropTech to research, purchase, sell, and manage real estate.
You can also upgrade buildings to make them more marketable and comfortable for users. For instance, a smart thermostat can learn your room temperature preferences and adjust the heat automatically when you arrive in the office.
On the other hand, smart locks allow you to lock your building and walk around without a key. You don’t need to worry about losing your keys.
If you rent vacation homes, keyless locks allow smooth check-in for guests. Give your clients a unique code to unlock doors and change it as soon as they check out.
Explore the latest property technology and adopt what makes your life easier.
Last-Mile Distribution Outlets
Last-mile distribution hubs existed before, but they became more popular than ever amid the COVID-19 due to increased online shopping.
Essentially, these are the last stop points for goods before merchants can ship them to the buyers’ homes and offices. The buildings are usually in strategic areas in populous cities like Jackson for a broader customer reach.
Many merchants, including large-scale retailers, are converting their stores into last-mile distribution centers. You can acquire brick-and-mortar stores and retrofit them to become last-mile product distribution hubs.
If you haven’t heard about ghost kitchens, these are catering kitchens designed to fulfill food delivery orders. They are a new concept that commercial real estate investors can implement this year. How do they work?
A catering team rents a kitchen space from a landlord, preferably in a densely populated area. They list their brand on an online platform and start getting orders. From there, they prepare meals and deliver them to customers.
A micro-unit is a small suite, usually a single room unit designed to provide the bare essentials of an apartment. They often come with a living-cum-bedroom area, a kitchenette, and a small bathroom.
The houses are ideal for low-income individuals looking for a safe dwelling. Due to the compact size, micro-units are cheaper for tenants than ordinary, single-family units. The owner can also charge a relatively high price per square foot.
You can develop micro-units as single-room apartments or convenient guest rooms for businesses such as restaurants.
Another real estate trend an investor can consider is the fabrication of business buildings into multi-family rental complexes. It has become increasingly accepted due to the rising construction costs.
Target large properties like hotels, factories, malls, and office buildings that have closed down. The advantage of such facilities is that they are often in strategic areas for homes. Additionally, you can modify them at a considerably lower cost than erecting a new construction.
Find Commercial Real Estate Help in Jackson, MS
Are you a commercial real estate investor in Jackson, MS looking for help with property acquisition, sale, and management?
Speed Commercial Real Estate is a seasoned property sales and management company that has served Jackson, MS area for over 17 years. We can devise a well-thought-out marketing and leasing plan for your property to maximize profits and give you an edge over competitors.
Contact us for commercial real estate help tailored to your needs.