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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Will Commercial Real Estate Recover in 2021?

Housing-Market / US Housing Feb 08, 2021 - 02:05 PM GMT

By: Sumeet_Manhas


With the COVID-19 pandemic devastating many industries worldwide, tourism and commercial real estate are two of the most prominent and the most negatively impacted.

With remote working forced upon many companies across the UK and abroad, the commercial property market has plummeted; “fallen off a cliff” is possibly the best metaphor to highlight the industry's plight amid the pandemic. 

With tourism hit as well, hotel rent delinquency rates grew from 1.5% in the US during January 2020, to approximately 25% in July 2020 according to one report from Yahoo Finance

What Does the Future Hold for Commercial Properties?

With Twitter announcing that a large percentage of their employees will be able to work from home permanently, and Facebook stating that they are looking to hire workers remotely - the future of commercial real estate does not look especially promising either.

With remote working allowing people to escape the hustle & bustle of city centre life, will people retreat to the suburbs? The fact that you could live anywhere globally and work for a major corporation may also mean that city centre commercial properties could be hit even harder, with more supply and less demand. The residential property market is likely to be affected in too. 

Many experts such as Daniel Austin, chief executive officer at ASK Partners Ltd, suggest that commercial offices may transition into a hybrid model with home working, local office hubs, and a head office. However, the commercial property demand is likely to fall in 2021, with an increase in commercial properties bought to be converted into residential properties.

With the technological infrastructure in place thanks to the availability of high speed broadband, encrypted internet connections, video conferencing software and phone answering services, it’s possible that many entrepreneurs will look to cut overheads and start remote businesses too.

A Renaissance for Suburban Office Space

One of the big questions will be around city centre metro areas and landmark office and business locations such as Canary Wharf.             

In New York, the Financial Times reported that there has been a mass exodus to the suburbs, with people looking to capitalise on the remote working trend of 2020 and relocate to larger homes in areas such as Westchester and New Jersey. 

Back in the UK, Daniel Austin back in May 2020 stated that the inquiries around village properties for residential use soared, but they may have been related to the best weather in terms of temperatures and sunshine that the country had experienced for quite some time.

There is a chance that, as more people work from home and move away from city centres, suburban offices may become more common and office space in these areas may become more in demand. These local offices will allow people to work at home or near home and meet up and socialise with colleagues.       

Green Office Buildings

In London, living-walls are being implemented across the city to help offset some of the pollution. It is likely that this trend of green walls, biophilic designs and environmentally friendly construction techniques will increase in 2021. Despite the current exodus to the suburbs, it is still predicted that most of us will be living in cities by the year 2050. 

In China, they are planning to develop entire ‘forest cities’ in the Liuzhou area in an attempt to reduce air pollution levels.

Massive living walls have already be installed in cities such as Barcelona. The plants' maintenance is relatively easy, as they are all connected by tubes, allowing them to be fed with programmed doses of water and nutrients.

In cities such as Singapore, biophilic design has also been an essential consideration for the area's temperature. With plants able to reduce offices' temperatures, they can cut air conditioning bills in an eco-friendly way. The ‘heat island’ effect has meant that temperatures have risen over recent years in the densely populated Singapore. With global warming not going away any time soon, and the UK experiencing hotter summers than ever before, the cooling effect of living walls and green office designs is likely to be considered here too.

Warehousing & Industrial Properties

Thanks to the surge in online shopping during the pandemic, industrial warehouses and storage facilities that work with online retailers such as Amazon have seen an increase in demand.  

20% of US sales were online at the start of the pandemic, this rose sharply to 30% once the pandemic had led to lockdowns. It is thought that this rise would have taken over 5 years if it had not been for the pandemic. Because of this, the demand for warehousing and logistical services jumped dramatically.

Unfortunately, the demand for warehouse and online retail has been mirrored by the drop in demand for traditional bricks & mortar shopping.

Investment Opportunities for Property Developers

Whilst it may be bleak in some respects; some experts argue that 2021 may be the best time in decades to invest in commercial property.

Whilst the newspapers and the media in general will highlight the plight of any big named retailers that are shutting down, such as Debenhams and Topshop; that does not necessarily mean that investment in high street retail is to be avoided.

Smaller shops have also been hit hard by the pandemic. Whilst that is bad news for retail, it does give property developers and investors some alternative options when it comes to looking for properties that can be converted into residential homes.

The government is aware that the UK has more commercial property than it needs. For this reason, the government has issued new permitted development rights that allow investors to develop and convert commercial buildings into residential properties without the usual reams of paperwork that have to be endured and navigated.

Commercial property is relatively cheap per square foot, especially when there is a surplus amount on the market. Residential properties are often double the value per square foot. With the right investment, and the right skills or contacts, purchasing a commercial property in 2021 could prove a lucrative investment.

By Sumeet Manhas

© 2021 Copyright Sumeet Manhas - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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