The crushing effects of the COVID-19 pandemic and the Presidential election are giving rise to various real estate investment trends in 2021. As the real estate asset classes are resuming their operations, there are several emerging real estate trends that are shaping the industry in 2021.
Let’s discuss how the real estate investment trends will influence investment portfolios and change the impact of real estate on the economy.
How are real estate investment trends in 2021 affecting various asset classes?
1. Industrial Property
Industrial properties have been the most resilient real estate asset class in 2020 amid the COVID-19 crisis.
This is largely due to the spike in online shopping.
CBRE Research has found that year-over-year e-commerce growth surged to 44.5% in Q2 from 14.8% in Q1.
Therefore, the demand for industrial real estate will rise in the coming years.
Trends for 2021
This rise in e-commerce sales causes a surge in the long-term demand for logistics real estate.
So, there is a strong demand for warehouse spaces, data centers, last-mile distribution, cold storage, etc in urban centers.
However, the lack of spaces and high costs will lead to the reuse of retail buildings for industrial occupiers.
And, class B industrial spaces will fill as distribution centers near population bases. Thus, these properties will experience rent growth, low vacancies, and renewal rates.
Moreover, larger distribution centers of 600k+ sq. feet will also rise in the outskirts of metros.
Also, industrial rental properties will bring in more investors and continue to be an attractive asset class.
Hence, real estate market trends will be in favor of industrial properties over the next 12 months.
2. Multifamily
2020 was an overall tough year for multifamily owners as they lost rental income plus income from waived fees.
Also, deferred rents and delinquencies also affected them negatively.
Trends for 2021
CBRE forecasts a return to pre-COVID vacancy levels and a 6% increase in net effective rents next year, with chances of a full market recovery in early 2022.
So, investments continue to boom despite eviction moratoriums.
Hence, home prices will continue to increase, and buying a home will still be far from reality for an average American.
So, Class B assets should continue to see low Vacancy rates and steady rent growth in 2021.
Moreover, CBRE Research predicts U.S. multifamily investment volume will reach about $148B next year.
And, this is largely due to suitable mortgage rates by Fannie Mae and Freddie Mac.
In addition to this, investors will likely prefer sub-urban properties as a majority of the population continue to work remotely.
In sub-markets, value-added strategies can drive favorable real estate industry trends in 2021. Therefore, suburban assets in the Midwest and Southeast regions will profit the most in 2021.
Nevertheless, apartments in New York and San Francisco will bounce back by 2024.
Lastly, “Build to Rent” multifamily sectors will attract millennials with declining housing supply and rising housing prices.
Also, commercial real estate moguls will convert distressed hotels to multifamily assets to solve the country’s affordable housing crisis.
3. Hospitality
Unending lockdowns and travel restrictions severely affected the hospitality industry in 2020.
So, occupancy levels dropped from weekly averages above 60% to as low as 21% in mid-April.
Also, Revenue per available room (RevPAR) reduced by over 80% year over year.
As a result, several hotels and hospitality properties closed their properties temporarily while others went out of business.
Trends for 2021
However, the rollout of multiple COVID-19 vaccines marks the beginning of a positive, long-term recovery of the hospitality sector.
STR, the US’s leader in hospitality research, projects a 30% increase in RevPAR for 2021.
Hence, JLL reports suggest private equity groups and high-net-worth individuals will continue to be active investors of hotel assets in 2021.
Moreover, non-traditional investors are investing in distressed assets and realize outsized returns by 2025.
Also, the strongest hotel owners and operators will redesign their hotel rooms and introduce touchless technology in their services to follow social distancing post COVID.
Overall, the hospitality sector will be a major player in the real estate investment trends in 2021.
4. Office
Most office spaces were vacated in 2020 for the pandemic.
With the pandemic still a threat at large, companies have adopted work-from-home policies.
As a result, CBRE reports that office demand could be permanently cut by 15% due to this shift to remote work.
Trends for 2021
According to CBRE, 85.7% of companies plan to return to office halfway through 2021.
But due to social distancing, there will be a rising need among companies to provide more space per employee.
Hence, the companies will have cheaper office space options in suburban areas.
However, these shifts may occur in the long term.
Thus, it is uncertain how the real estate investment trends in 2021 will impact this asset class in the first half of the year.
5. Retail
After the major shift to e-commerce in 2020, the retail market slowed down.
However, there are chances of recovery of the retail sector with the emerging real estate investment trends in 2021.
Trends for 2021
A handful of the best-located centers should be able to see a spike in their demand after many tenants vacated them in 2020.
New retail concepts, digitally native brands, automotive showrooms and service centers, medical uses, franchisee-driven operations, health and wellness, and others may occupy the vacancies.
Furthermore, grocers, convenience stores, and quick-service restaurants can occupy second-generation spaces with low rental rates in prime locations.
Moreover, private equity and venture capital funds will actively finance new retail ventures, for greater returns.
Also, retail conversion to multifamily, self-storage, or even last-mile distribution uses will be viable on a market and asset-specific basis.
And, grocery-anchored shopping centers in sub-markets and urban cores will drive in higher investments in 2021.
6. Student Housing
Prior to the pandemic, investment in student housing properties was steadily increasing each year.
But, the outbreak of the virus led to universities shutting down indefinitely and students returning home.
However, enrollment which fell about 3.0% in fall 2020, should rebound in 2021.
Trends for 2021
The new academic year must boost occupancy and leasing, thereby attracting investors. Enrollment in fall 2021 should increase with more international students and high school graduates.
As a result, Tier I reputed universities will attract a large number of domestic and international students.
Hence, their student housing markets near the campuses will be more investable.
Further, student housing investments benefit from the cheap long-term financing by Fannie Mac and Freddie Mac.
Thus, the current difference between borrowing rates and cap rates should provide upwards pricing pressure for the next few years.
So, cap rates are likely to decrease further in 2021.
7. Self Storage
Self-storage was profitable even during the pandemic when renters and offices moved to the suburbs and needed places to store their items.
Trends for 2021
The net-operating-income (NOI) growth of self-storage between now and 2024 ranks third. It is only behind manufactured housing and industrial.
It is expected that by 2025, the valuation will reach $115.62 billion with a CAGR of 134.79% over the forecast period of 2020-2025.
StorageMart — the eighth largest self-storage company — announced Bill Gates joined them as an investor.
So, real estate investment trends favor this resilient and recession-resistant asset class.
Besides, public REITs acquire self-storage to balance their portfolios with fewer capital investments.
Moreover, growing metros support new development and repurposing of self-storage spaces of five sq. ft or less within the primary market area.
Hence, self-storage continues to point upwards in the real estate investment trends in 2021.
8. Senior Housing
Studies estimate, in 2021, 23 million people over the age of 75 and 8.9 million over 83 are living in America.
And, 83 is also considered a common age for people to move into senior housing.
So, It is estimated that by 2050, over a fifth of the population in the United States will be 65 years or older, compared to only 15.6 percent today.
Trends for 2021
Despite higher move-out rates of seniors, some properties leased new residents during the pandemic and saw low resident turnover.
However, real estate investment trends may not immediately benefit this asset class in 2021. Hence, mostly, attractive discounts and resident eligibility will help this sector to recover this year.
9. Medical office
Investors favor Medical office buildings (MOB) for their long-term leases, stable occupancy and income, and tenant credit quality.
Therefore, real estate investment trends in 2021 will majorly favor this asset class as well.
Trends for 2021
Sale-leasebacks seem to be a viable option for real estate healthcare owners in 2021. In this system, the owner sells their property and leases it back from the new owner.
So, the sale of the real estate asset produces faster access to capital for other uses.
Demand for medical offices will result in the demand for medical office construction in 2021.
However, small-to-mid-sized medical offices and critical care uses will in the medical sector even post COVID.
Thus, both of these segments of the medical office will generate greater income and long-term leases. Therefore, medical office properties will fare well in the real estate investment trends in 2021.
How will Location affect the real estate investment trends in 2021? 200
Work-from-home and consumer buying habits will largely shape the real estate investment trends in well-located properties across the country.
- Certain markets like South Florida and the Mountain Region saw a growth in suburban migration and mutifamily investments.
- Various companies are relocating their headquarters to secondary markets such as Texas. For instance, Oracle to Austin, CBRE to Dallas, and Hewlett Packard to Houston.
- In markets such as Raleigh-Durham, Nashville, and Phoenix, multifamily properties and apartment rents are seeing a huge spike.
- Raleigh-Durham, NC, Denver, CO, Charlotte, NC, Austin, TX, and Phoenix, AZ are the major locations of preferences among residents and investors.
- Cities such as Boise, ID, Bozeman, MT, and Salt Lake City, UT are also seeing a boost in investments due to their affordability and attractive quality of life.
The Lilypads Bottomline
COVID-19 has given rise to several real estate investment trends in 2021
Hence, it is evident that although the US real estate economy is still struggling from the after-effects of 2020, it is expecting recovery in 2021. And, the revival of the major asset classes will shape the real estate investment trends in 2021.