The Covid-19 pandemic left few industries untouched. The commercial real estate landscape, in particular, shifted drastically as the global workforce moved to a work-from-anywhere approach overnight.
Some experts believe the industry will rebound dramatically in the first quarter of 2022. The Urban Land Institute, for example, predicts that U.S. commercial real estate transaction volume will exceed $500 billion this year — which is more than $100 billion higher than previous averages.
CRE businesses have responded in different ways. One hotel operator located near a hospital used its property to house hospital staff during the peak of the pandemic, while another hotel operator decided to shutter lodging operations altogether and redevelop the property to a multi-family rental. Similarly, a regional mall owner is redeveloping an aging mall into a mixed-use residential and retail property.
These new commercial real estate trends are impacting developers, property owners, and businesses that are renting property. The silver lining of the disruptions is that — for those with a strong tolerance for risk — there are additional opportunities for commercial real estate this year and beyond. These trends create a wealth of new investment potential.
After more than one-third of commercial real estate projects were halted due to the pandemic, developers obviously suffered. Lenders and investors simply were not comfortable lending huge sums of money in such a disruptive and volatile environment, and the price of raw materials like lumber skyrocketed, which caused project delays and cancellations.
Still, even with these setbacks, the commercial property sector has shifted in positive ways. Yes, less space is needed in some buildings as workers continue working from home. But for companies that do expect some or all of their workforce to return to the office, there is a greater demand for office space with a highly controlled environment that offers safety. Self-contained buildings, for example, will be the preferred choice in comparison to skyscrapers.
Commercial real estate such as shopping malls, certain retail spaces, and office workspaces were all impacted by the pandemic. Property owners had to pivot their strategies quickly as consumers turned to e-commerce and stopped going to retail stores completely.
The challenges faced by retail-based commercial real estate can mean new opportunities for investors and owners. As retailers seek to create safe, open spaces for their customers, they'll want open-floor plans with good airflow. Property owners can also reuse existing building systems to create transparent environmental monitoring and real-time reporting.
As employees continue to push for the continued use of the pandemic-induced hybrid model, property owners should stay ahead of the trend. Some may take this opportunity to lessen their portfolio of office buildings, and invest in multi-family properties in secondary cities and suburban markets.
Prior to the crisis, organizations often had to shuffle office space to maximize density. Now, the opposite is true. Businesses are managing to lower density targets, instead preferring to spread people out and allow hybrid work models. The pandemic didn't completely eradicate the need for office space; it merely changed how office spaces are used.
As the way we work evolves, so do businesses' commercial real estate needs. Investors and property owners who can adapt to the evolving needs of tenants will have the chance to potentially pursue new opportunities and innovations in evolving commercial real estate spaces. The key to success is understanding the ways company and tenant needs have evolved as a result of the pandemic, find areas of opportunity, and be able to execute on them as quickly as possible.
Get in touch with one of our commercial real estate specialists to discuss how you can take advantage of these recent trends and act on your plan.
This article does not constitute legal, accounting or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.