The COVID-19 pandemic has crushed some aspects of commercial real estate, while lifting others up. Its impact is too great — and still too uncertain — to pass judgment just yet.
So, we asked a number of influencers in commercial real estate to look into the future and predict its impact on commercial real estate in 2021.
Here are their thoughts:
Robert Atkins, managing partner, Atkins Cos.
The next few months will serve as a critical barometer for the year ahead, with the health of all sectors hinging on whether the vaccine rollout will be successful. The medical office sector has fared better than most, but the ban placed on elective surgeries when the pandemic was at its peak adversely impacted practices reliant on such procedures. If the current surge does not necessitate another lockdown, things should remain status quo in the short term, and I am hopeful widespread vaccine administration will return us to a degree of normalcy, thus gradually increasing patient traffic to pre-COVID levels.
Stephen Cassidy, president, Denholtz Properties
As much as 2020 was defined by dramatic, overnight changes to where and how we work, I expect 2021 to be defined by a gradual return to normal. While employees have enjoyed the convenience of remote work, maintaining and building workplace culture and collaboration is significantly more difficult without a physical office space. With the rollout of the COVID-19 vaccine, more workers will look to return to their offices over the next year, and we will see an accompanying increased flight to quality as employers look for workplaces oriented towards employee wellness and safety to ease the transition.
Peter Cocoziello Sr., CEO, Advance Realty
As we move into 2021, we foresee increased demand for industrial space, facilitating end users’ warehouse distribution needs in the supply-constrained New Jersey market. This supply/demand imbalance will continue to cause rental rates and land values to increase. Due to the low interest rate environment and increased allocations for industrial investment, considering the strong fundamentals of the asset class, we believe cap rates will tighten further. Considering the mass distribution of the vaccines throughout the United States, and New York City specifically, we anticipate continued pent-up demand for multifamily and expect it to reemerge in the second half of 2021 in the New York/New Jersey submarkets. Advance is well-positioned to take advantage of these opportunities in 2021.
Louis DeVos, vice president, Woodmont Properties
As we enter 2021, the pandemic will undoubtedly continue to weigh down economic activity over the first half of next year. However, 2020 has taught many hard-earned lessons and led to strategic pivots to conducting business. Because of this, and in combination with the fast-approaching availability of a COVID-19 vaccine, we anticipate the real estate industry will ultimately see extraordinary demand and growth by the end of 2021. In the meantime, low interest rates will continue to drive multifamily real estate values, plus, consumer demand and constrained supply will drive up overall inflation for the first time in many years
Clark Machemer, senior managing director, Crow Holdings
The coronavirus has taken a significant toll on the financial situation of many municipalities. As these cities and townships look to balance their budgets without overburdening residents and existing businesses, proactive leaders will seek to expand their ratable base. While some property types have suffered amid the pandemic, e-commerce has driven demand for warehouse space to unseen heights. Municipal leaders with the foresight to appropriately plan for growth will attract this development, which will boost tax revenue significantly, averting a cash crunch while bringing much-needed logistics space to the market in a smart and thoughtful manner.
Ken Pasternak, chair, KABR Group
There will be a return to normal in 2021. When COVID-19 is eliminated by year-end through vaccination, there will be pent-up demand for tourism-based travel, entertainment and restaurants. We expect the underlying real estate to recover much of pre-COVID-19 numbers in these sectors. The challenge is the two trends accelerated by COVID-19. Work from home will be a significant portion of many business models going forward. This does not portend well for office, as most tenants are looking to restack and reduce space by as much as 40%. Transit village multifamily will be in oversupply for the intermediate term, with lower rent yields and (net operating income) creating lower values. Even more challenging will be the ability of work-from-home employees to move to low-tax, low-cost states in the South and the Southwest. Unless these trends are reversed, the outlook for both office and multifamily will be negative in the intermediate term.
Peter Sudler, chairman/CEO, Sudler Cos.
The current challenge over the next five years will be addressing distribution space demand. Site development requires forward planning and managing the entitlement process in New Jersey. At Sudler, we’ve been proactively pursuing approvals in our land banks as well as converting legacy office buildings into logistics and distribution space. Former retail locations continue to fade, an indication that this will be the year of big movement to repurpose those malls to last-mile logistics centers and reverse logistics — a growing opportunity. The trend of adaptive reuse of existing legacy office and retail boxes in a site-constrained market such as New Jersey is challenged by land-use issues and the myriad of approvals required, but is gaining traction.
Ralph Zucker, president, Somerset Development
The office market will see continued growth in suburban rings surrounding urban cores, especially as more companies embrace the hub-and-spoke model. Specifically, COVID-19 will continue to propel a reverse migration of companies from central business districts to suburban markets throughout the nation — provided those suburban locales have a ‘center of gravity’ with access to culture, dining and modern conveniences. Health and wellness will continue to define the modern workplace and the way it looks, feels and functions. The standard office park of yesterday will give way to properties that embrace a holistic approach to the workplace, in which people can once again safely gather, collaborate and inspire.