Latest Trends and Insights
Economic, social, and digital disruptions combine to force a change in how Commercial Real Estate(CRE) is developed, financed, and used.
The real estate sector roars back to life
From the beginning, the COVID-19 pandemic has defied almost every economic prediction. In March 2020, stores, restaurants and offices emptied out with astonishing swiftness. The stock market tanked and jobs quickly disappeared. But what many around the world feared would be a long and devastating economic downturn didn’t happen. The economy—along with the real estate sector—bounced back in record time. Output’s already above pre-COVID-19 levels and jobs could recover to previous levels by early 2022.
To many, the property sector may look remarkably the same as it was before the pandemic. It isn’t. Some markets and sectors may have changed forever. Some buildings and other assets are obsolete, and property managers now have to imagine how they can be repurposed. Other economic hurdles include supply chain bottlenecks that slow or halt production. Labor and product shortages also bring fears of inflation, a major economic risk.
What to expect now? The virus will have a major say in that. In spring 2021, the Delta variant took hold and COVID-19 infections spiked. Many jettisoned travel plans and hesitated to eat inside a restaurant or go to a movie unmasked. Employers delayed return-to-office plans. One certainty: Companies must build flexibility and the capacity to adapt quickly to market changes.
The pandemic’s lopsided impact on real estate
Even though the pandemic has spared no state or city, its impact on World property markets and sectors now diverges in ways significantly different than in the last recovery. That divergence means that some sectors, like industrial properties, have barely paused because a surge in online spending spurred tenant demand. The same is true for multifamily properties, with tenant demand still increasing and rents back to record levels throughout much of the country.
Despite this surge, the pandemic accelerated the retail property sector’s long slide, with store closings and vacancies rising. The only exceptions are grocery-anchored centers, dollar stores and home improvement retailers, all of which are thriving. The office sector is, unsurprisingly, in the midst of a major reset—with vastly different outcomes based on location and whether a building has flexible layouts and better ventilation systems. Even so, vacancies are likely to keep rising.
Vacation travel is recovering, with hotels within an easy driving range of population centers appearing set to reap some of the greatest benefits. But business and international travel may not return to pre-COVID-19 levels for years. That would take a toll on hotels, luxury retailing and upscale dining that’s often fueled by company expense accounts.
The pandemic magnified an ongoing shift away from expensive downtown markets and toward smaller, more affordable ones. As a result, businesses need to stay nimble. Uncertainty can be a curse, or an opportunity.