7Park Data’s 2021 Predictions for the Commercial Real Estate Market
Uncertain. That’s the word that sums up 2020 for commercial real estate (CRE) investors. And that uncertainty will linger through the next few months as coronavirus infection rates continue to rise. The good news is that multiple pharmaceutical companies are preparing to distribute vaccines. After analyzing numerous data sources, we predict that even as the pandemic recedes, its impact on many CRE sectors will be permanent, and here are a few trends we’re watching in 2021:
The pandemic will not lead to a permanent exodus from cities. People will still want to live closer to where they work. Cities saw a decline in home addresses but not work addresses. People want to be close to where they work and will come back to the office. But that doesn’t mean they are going to start breaking down their home offices.
Our analysis reveals that a hybrid model, mixing remote work and office work will become the norm. This prediction is in line with the key findings of a recent survey of 2,033 office workers worldwide by the commercial real estate firm JLL.
About 75 percent of respondents want to continue working from home at least part-time. Of that group, most hope their employer will support a hybrid model, allowing them to work remotely on a part-time basis (on average twice a week). Only about one-quarter of workers plan to return to the office full-time after the pandemic recedes.
Online sales for goods across most product categories will decelerate as states lift health restrictions and allow brick-and-mortar stores to re-open. We saw that occur in early June after the initial wave of coronavirus infections receded nationwide, and most product categories experienced online sales declines. However, online spending will remain above pre-pandemic levels to a wide range of retail goods, including clothing, electronics, groceries, hardware, and home goods.
Customers expect groceries delivered in hours rather than days. These goods have special storage requirements (e.g., temperature thresholds) that logistics networks must consider to support inventory turnover. That will compel grocers to build new facilities exclusively for delivery in addition to their in-store models. In August, we predicted that cold-storage would continue to be an excellent opportunity for institutional investors. That prediction still holds for 2021.
Interestingly, while many tech companies have seen significant gains in new customers due to so many people working from home, that won’t translate to tech workers driving up rental rate increases—even in tech hub cities like Seattle.
Our latest Residential Macro Beacon Report, “Non-Tech High Earners Drive Rent Growth,” reveals the concentration of six-figure earners across broader industries is more highly correlated to rent growth than total tech workers. This indicates that cities with a robust, diverse workforce will sustain above-average rental rate growth through 2021.
Six-figure earners are growing at more than twice the rate of tech workers. This is due, in large part, to the emergence of Secondary Tech Hubs that has allowed employers to reduce costs, in part, by paying lower wages to tech workers. As a result, Tech has fallen behind other sectors in creating six-figure jobs. Since 2019, the rate of $100k earner growth within the Tech sector has been slowing.
Our analysis of these trends also informs our top-line recommendation for the coming year: don’t change your investment thesis.
CRE, like any market, has its ups and downs. Our data indicates that the commercial real estate market will return to the mean.