Commercial Real Estate Thoughts For 2021

Although the Covid-19 pandemic negatively affected all classes of commercial real estate (CRE), it has also generated innovative possibilities for the CRE market including affordable rental prices, efficient online communication, and the processing of forms and payments with a finger’s touch.

The general consensus is that commercial real estate is gradually beginning to recover from the pandemic’s impact. This recovery may have its difficulties and setbacks, just like in 2020. However, this can also mean that positive opportunities are waiting for business owners and investors. Knowing some of the latest trends and predictions can help you make smart decisions in the CRE market this year. Here are a few emerging trends and predictions you should be aware of in 2021.

• Because of the pandemic, many companies were forced to require their employees to work from home. While it may seem like there would be no use of office space in 2021, there are actually several opportunities in the CRE market for commercial offices that were not there before. Vacancies in high traffic areas make this the perfect time for commercial owners who are looking to expand.
• While many businesses are still waiting to bring their employees back to the office, there are undoubtedly several good reasons for having an office in a post-Covid environment. In an office, employees have more space to work collaboratively, increasing cooperation and efficiency. Savvy CRE owners and investors are acknowledging the fact that with the pandemic winding down there are business owners out there looking for affordable office space and to make investment decisions this year.
• E-commerce, an already growing sector prior to 2020, boomed during the pandemic. In response, retail stores and third-party logistics businesses are not only growing or optimizing their fulfillment center footprints, but many of them are also switching from a just-in-time inventory model to a just-in-case approach as they aim to prevent the shortages of goods encountered throughout 2020. We are experiencing that in the Knoxville market with the entrance of Amazon. As this trend continues, online shops will need to lease warehouse space for their growing businesses. This will provide a steady increase in leasing opportunities in the CRE market that owners and investors should take advantage of.
• The passage of the American Rescue Plan will play a significant role in the sustainability of small businesses as they can potentially use their stimulus to expand into other commercial areas. CRE investors and owners should keep a close eye on small businesses and be prepared to seize opportunities. Additional factors, like vaccination rates and normal travel restoration could lead to a possible revival starting in late 2021.
• The Tax Cuts and Jobs Act of 2017 established Opportunity Zones in certain lower-income zip codes. Money invested in Opportunity Zones can qualify investors for reductions in capital gains tax. Most experts agree that the program has not produced desired results so far, but this may change in 2021. The Biden Administration has pledged to make changes to the program, and many funds and independent investors are eagerly awaiting the updated guidelines. With the right structure, opportunity zones could begin to flourish later this year.
• In the Knoxville area, despite the pandemic, the commercial real estate market is significantly more active than other areas of the country. The busiest sector is industrial warehouse space where there is virtually no availability. If a space does open up, it is refilled almost immediately. Within Knox county, this situation will continue as there is little land available for building new facilities. The market for office space is also very active as existing area companies look to expand and new companies enter the market. When compared to 2019, there are more and bigger office space deals being made.

All of these trends point to significant growth opportunities for the local commercial real estate market. These trends, coupled with the Chamber’s Path to Prosperity initiative that includes growing existing area businesses, attracting new businesses and implementing a proactive work force development plan are positive indicators that are community is moving forward.