Despite the overall volatility of the 2020 economy, the commercial real estate market remained relatively steady. This was mainly due to an even level of inventory and sales prior to March and continued low-interest rates on loans. 

For 2021, both the business and commercial real estate sectors likely will change, adapting and evolving to meet the new normal.

Office: Coworking spaces and micro office units will gain in popularity as more entrepreneurs start online businesses and seek locations where they can work inexpensively, but without the distractions of working at home. 

Micro units are small, efficient suites designed to give users just the essentials and none of the fluff. The spaces are smaller than traditional office units, usually in the 200- to 400- square-foot range.  Tenants looking for office space will find micro units are more affordable, while the landlords can charge a somewhat higher price per square foot.

Class A office space could carry a bit more risk as an investment in the next two or three years. Many of the tenants of these spaces, primarily corporate tenants, face decreasing revenues, increased online competition and a move to work remotely. This isn’t to say the need for top rate office space will disappear but prepare for some major changes to the way we look at office environments both at the high end and entry-level.

Multifamily: The events of 2020 did little to abate the demand for affordable housing and apartment units. Everything from four-plexes to large communities sell almost as fast as they hit the market. Prices are high with low cap rates, but many still sell after multiple offers.

Restaurants: The restaurant industry was hit as hard
as any sector in 2020 and was forced to innovate. A new concept evolving out of the coronavirus pandemic and the shift to online ordering is referred to as ghost kitchens. These ghost kitchens are popping up mostly in higher density markets. They’re essentially catering kitchens that can be shared between several chefs, or are small enough for a single group, designed solely to serve to-go
and delivery orders. The lack of eat-in space allows restaurateurs to affordably open and test new concepts before spending a large amount of capital on a buildout or long-term lease. 

Much like the food truck revolution, ghost kitchens should allow many new food concepts to add to the choices for eating out.

Retail: Big box retailers and shopping malls have faced diminishing returns for more than a decade, and the pandemic did nothing to change that. In fact, the pandemic compelled people to use more online ordering instead of in-person shopping, forcing retailers to spend more on their online presence and compete directly with such online behemoths as Amazon. With their high operating overhead and difficulty drawing shoppers, it’s inevitable some big box stores and mall retailers will continue to shrink or close their doors.  

This will leave large empty buildings near shopping centers and once busy malls. Solutions to repurposing those empty big box stores are already showing up as distribution centers, gyms, churches and schools. The trend likely will continue.

Industrial warehousing and distribution: Someone has to pack and ship all the boxes from those increasingly frequent online orders. The need for fulfillment and distribution warehousing has increased industrial real estate demand. Increased consumer demand for quicker deliveries will force online retailers to not only occupy distribution centers closer to their customers, but also hold more stock on hand, potentially increasing their spatial needs.

The path ahead for commercial real estate could be bumpy and include a few detours. But opportunities remain. The keys to keeping your business going or investments above water include adaptation, communication and innovation. Creativity and a willingness to adjust will enable your business to survive and perhaps even thrive in 2021.