A tumultuous 2020 has left its mark on a multitude of economic sectors. What are the consequences of the pandemic crisis on the commercial real estate market in 2021?
What can be expected will depend to a large extent of where the property is, and which segment of commercial real estate activity is being considered. At any rate, there is by all accounts a huge pent up demand. The U.S. savings rate has doubled over the last year. The stock market is on fire, which is a good thing, but it is also making investors nervous. Equities seem to be poised for a major pullback. Savvy investors are starting to look into diversifying more of their assets in real estate so they can dodge that bullet.
The first half of 2020 saw very few transactions because low-priced commodities and depressed rents made sellers hold on to their land. Since late last summer, however, commodity prices have swung back up. It’s expected that sellers will soon find their way back to the table.
Parts of the country where agricultural land is set to increase significantly in value are the Southwest, the Mississippi Delta and the Midwest. The Mississippi Delta has excellent soil and water reserves going for it. The Midwest has always performed strong. In the Southwest, there is a growing market in Arizona where people are finding better access to water than they do in California, and the South Texas market is looking pretty solid as well.
In the past, developers have made mistakes by counting rooftops and not people living permanently in dwellings. Thus the boom and bust of retirement communities in Miami, for example, where retail investments went awry because the patrons that shops relied on would simply not show up for months on end. Developers have learned their lesson and are finally focusing on levels of occupancy primarily.
There will be plenty of opportunities on the horizon in the commercial real estate market in 2021 in those places to where business and people are moving, so those are the Western and Southern states first and foremost with a special mention for Texas (is there anyone NOT moving to Texas in 2021?). South Dakota is also on the radar as a place that has a thriving business climate that is conducive to attracting a lot of newcomers and let’s not forget about Florida which has the second fastest growing economy in the country.
Heavy industrial manufacturing has been making a comeback in the last few years. Companies are reshoring and this makes for promising investment opportunities. Remember how we were shocked to run out of essential medical supplies at the onset of the pandemic and could not believe how we relied on those Chinese imports? That’s why there will continue to be an increase in demand for manufacturing land in this country.
Where will the new factories be constructed? Expect investments to happen in the Midwest with its vast pool of skilled workers. When factories left, these workers stayed in place. Places such as Kentucky and Indiana have very friendly business climates and plenty of land that is suitable. And let’s not forget the Southeast and – again – Florida and Texas. Where governments understand the opportunities offered by cost-sharing, valuable brownfield-projects will see the light of day and cities will finally be able to get rid of their ugly marks.
Distribution centers are the backbone of the current surge in e-commerce as is industrial land. Did you know that for every $1 billion dollars of new money spent online there are one million square feet of new warehouse space needed? Expect more demand for land that can carry those warehouses in the commercial real estate market. Internal migration towards the Southern and Western states was already mentioned, so these are the regions where these new warehouses will be built.
Senior housing is going to see sustained growth. This segment has done well for quite some years now with occupancy rates of 95 percent and higher. Especially assisted living units will continue to be in high demand. Where can all these seniors in need of care be found? In the Southeast and the Southwest (Arizona!) and don’t forget the Texas coastal line.
Finally, for commercial land in retail, it’s a mixed picture for 2021. A great many businesses have suffered and even closed throughout 2020. Will the surge in e-commerce that is firing on the demand for warehouses previously mentioned sound the death knell for all brick-and-mortar shops? No, it will not. Businesses that can continue to function in a hybrid model where you are able to order online and pick up your order or have it delivered will survive in great numbers. These shops will be found wherever people will be found.
Commercial real estate, whether agricultural, industrial, retail, senior housing, or online retail will offer a great many opportunities for land investors in 2021 if they do their homework and understand how market dynamics differ significantly not only across sectors but also across regions in the United States. As always, the real estate investor’s ability to adapt to sweeping technological changes, will determine how successful they will be.
Based in Winter Haven, Fla., Ben Crosby is a Managing Broker at National Land Realty. The company’s proprietary viewing technology, Land Tour 360™, as well as its GIS land mapping system, LandBase™, is offered for free to the public. More info at www.nationalland.com.