What Commercial Real Estate Looks Like a Year Into the Pandemic


The light at the end of the tunnel may be in sight for the U.S. economy.

As JPMorgan Chase (JPM) Chairman and CEO Jamie Dimon detailed in his recent letter to shareholders, the economy could be headed for a boom that might run through 2023.

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“Strong economic growth, some indication that the pandemic coming under control, and continually supportive government policy all suggest broad positive trends,” said Victor Calanog, head of commercial real estate economics for Moody’s Analytics REIS. “Current data and forecasts suggest a fraction of the severity initially expected, even in the worst affected sectors like hotel and retail.”

Keep an eye on these trends and opportunities as we move forward in 2021.

Macro consumer trends to watch

Resiliency in rent payments: Multifamily rent payments saw a slight drop during the pandemic, which could have been bigger without rental assistance programs and a national eviction moratorium. Today, the outlook is optimistic. “Moody’s expects vacancies to stay under 5.5% in 2021, with rent growth turning positive,” Calanog said.

Multifamily moves: At the beginning of the pandemic, many city residents moved to nearby submarkets or out-of-state suburbs that offered more space per dollar. “Think Long Island and Suffolk County for Manhattanites, or as far as Texas or Florida for people seeking more space and less stringent lockdown rules,” Calanog said. “Places like Yakima, Wash.; Lakeland, Fla.; Grand Junction, Colo.; and Myrtle Beach, S.C., all posted household growth rates in 2020 that exceeded their 10-year average growth numbers by a factor of two or more.” As cities reopen, these tenants appear to be headed back to major markets.  

Going the distance: As e-commerce spending and demand for fast shipping grow, so, too, does the need for warehouse space. And it’s not just massive warehouses in areas like King of Prussia, Pa., that benefit. Smaller warehouses in suburban and urban areas are also needed for last-mile fulfillment facilities.

Shifting to hybrid offices: It’s unclear exactly what a return to the office will look like. The pandemic showed that some employees can successfully work 100 percent remotely. But other workers can’t, or they prefer to work on-site intermittently. It can also be difficult, if not impossible, to replicate on-site teams’ collaborative energy virtually. With so many factors at play, workplaces will likely use a hybrid model, which may look different from office to office.

The ABCs of retail: Retailers were largely shut down when the pandemic began. When small, local businesses like convenience stores, nail salons and specialty sandwich shops — the places that help give neighborhoods their character — could reopen their doors, customers were eager to return. B- and C- grade malls, which were declining prior to the pandemic, did not fare as well. 

Affordable housing creativity: The past year has made the urgency of the housing crisis clearer than ever. To increase the affordable housing supply, the industry needs to get creative. How can we build affordable homes quickly and inexpensively? Part of the solution involves adaptive reuse of buildings in the public (e.g., closed military facilities and schools) and private sectors (e.g., hotels and offices). In addition, some cities have a large supply of orphan lots, but their unique shapes and sizes can make them difficult to develop. When that’s the case, modular construction — which can cut down on construction time and associated costs — can be useful. Preserving existing affordable housing is also critical.

Opportunities ahead

The economy is picking up and doing better than many expected, creating commercial real estate opportunities for specific property types. Investors may want to consider:

  • Portfolio expansion: It may be an advantageous moment to buy apartment buildings, especially when you look at the competitive state of the housing market. Class A retail spaces may also be worth the investment.
  • Build-to-suit projects (BTS): It’s unclear what the workplace will look like in the coming months. Some companies, however, do have a clear view of their post-pandemic offices. The developers behind BTS projects can make that vision a reality.
  • Property refinancing: The rest of 2021 may provide an ideal time to refinance. Regardless of the asset class, real estate investors can take advantage of the current climate and lock in historically low interest rates.

Finish 2021 strong

With interest rates near zero, unemployment rates dropping, vaccinations rising and the potential for infrastructure investments on the way, the country could produce its highest gross domestic product (GDP) since after World War II. Although this economic potential is dependent on many virus-related factors, there are opportunities ahead for commercial real estate investors.

Al Brooks is head of commercial real estate, commercial banking at JPMorgan Chase.