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What to expect from commercial real estate in 2021

Market 2021

If offices, hotels and other commercial properties survive, their luck should change by the end of next year, according to industry experts.

Hotels, offices and retail storefronts are expected to trail a broader economic recovery next year; so investors are pinning their hopes on a COVID-19 vaccine in 2021. More commercial properties will go belly-up during the first half of 2021 before commercial real estate begins to stabilize in the second half of the year, experts say. Meanwhile, warehouses and distribution centers, the one bright spot in the industry, is expected to become even more valuable.

“As monumental as 2020 has been, 2021 could be even more influential, as the critical decisions and investment leaders make now could bear fruit over the next 12 months,” said Kathy Feucht, global real estate leader at Deloitte, a London-based professional services network.

To weather the tail end of the pandemic, commercial real estate investors plan to reduce costs by 25% on average in 2021, according to Deloitte. But cutting costs might be short-sighted — to keep up with new demand for ventilation, health-related amenities and digital proptech, operating costs could actually increase $19.40 per square foot in 2021, according to Deloitte.

Retail investment prospects. Data and graphic by PwC.
Retail investment prospects. Data and graphic by PwC.

Emergence of ‘dark stores’

More retailers went bankrupt in 2020 than during the Great Recession — especially department stores and apparel retailers. As brick-and-mortar retailers burn through cash reserves and consumers shop online, even more retail properties will go empty and landlords will default on their loans in the first half of 2021. Experts predict there will be 20% less retail real estate by 2025, according to the CBRE Group, a Los Angeles-based commercial real estate services and investment firm.

But once the coronavirus vaccine is distributed in the U.S., shoppers are expected to leave their couches and return to experience brick-and-mortar stores.

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