5 Predictions for Commercial Real Estate In 2021

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Predictions for The Commercial Real Estate Market 2021

What to Know About The Commercial Real Estate Market in 2021

As a consequence of the COVID-19 pandemic, no area of commercial real estate has been through as much turmoil as the hotel sector. How is 2021 going to be any different?

With the New Year heralding the mass rollout of vaccines and industry leaders forging new solutions to tackle the considerable challenges that 2020 delivered, this year is set to be one defined by transformation, agility, and game-changing concepts.

Let’s take a look at emerging real estate trends for the year ahead and what they mean for the hotel industry in particular.

1. Fast-Paced Digital Transformation

The COVID-19 pandemic significantly accelerated the trend for digitalization in the commercial real estate industry. In just a few weeks, technological solutions needed to be implemented to manage everything from remote working and communication to property tours, marketing, and day-to-day operational management of facilities.

Rather than the studied, conscientious implementation that many organizations were planning for, this baptism of fire not only highlighted the essential role of technology in the sector but the challenges around digital transformation itself.

As a result, we can expect to see digital transformation remain an important trend for the year ahead, with an increased emphasis on hospitality-specific needs and custom industry solutions that fill the gaps exposed by a rushed transformation. This includes a greater focus on cybersecurity and data privacy as cloud-based solutions continue to dominate the market.

2. Increased Focus on Resilience

COVID-19 commercial real estate challenges flipped business plans for growth and expansion on their head, showing the industry’s genuine need for a focus on resilience.

Across the globe, the commercial industry has experienced significant long-term drops in asset value, drastically lower demand for leased spaces, and significant declines in rents. 40% of respondents in a Deloitte survey anticipate a decline in rental growth, with 59% anticipating increased vacancy rates, along with an increase in operating costs of around US$19.4 per square foot due to the need for increased health and hygiene measures.

In hospitality, the values and needs of travelers have changed dramatically over the last year, forcing the industry to pivot in response and implement costly measures to cope with the new normal.

The long term effects on business travel will be significant, as employees want to work from home rather than travel for business and want to avoid the crowded urban hubs that were massive draws for business and leisure travelers in years past.

This translates into trends that support resilience over the long-term – of managing costs to improve operational efficiency, investing in custom digital solutions for property operations and management, reducing discretionary spending, and developing flexible solutions to support staff.

This represents an opportunity for hoteliers to re-evaluate businesses from the ground up, streamline and restructure operations, reduce redundancies, introduce automation, smart building solutions, and data-driven decision-making tools and utilize analytics end-user preferences to align their offering with the values of the consumer, ultimately.

3. Commercial Real Estate Price Recovery

Global commercial real estate investors forecasted falls in property value of up to 10%, but 90% of investors believe prices should recover to pre-pandemic levels by the end of 2021.

While hotels and the hospitality sector, particularly those in the business and luxury travel sector, are predicted to take the brunt of the longer-term damage, investors' positive attitude and the significant availability of capital for investment indicate that the early stages of recovery are on the horizon.

Of course, the recovery of commercial real estate asset prices ultimately depends on the continuing pandemic itself – the effectiveness of vaccine roll-outs, the opening of borders, easing of lock-down measures, provision of government-backed economic stimulus, and more – all differing by region as well as industry.

The storage rental industry will continue to thrive as it has over the last 5-10 years.

4. Capitalizing on a Competitive Edge for Small Operators

With remote working and online hosting of meetings, seminars, and trade shows remaining popular and the health risks associated with bigger gatherings, larger hotels are likely to continue to struggle to meet occupancy goals.

While this presents a challenge for full-service hotels, it does create an opportunity for smaller, select-service, or limited-service hotels that can more easily meet the needs of socially-distancing guests, hygiene protocols, and guests with more limited needs.

These hotels will likely continue to be seen as preferable over the next 12 months, as they can more easily offer guests the ability to avoid crowds, avoid unnecessary contact with staff, and more easily implement key services that make guests feel safer under the circumstances of the pandemic.

5. A Greater Hunger for Travel

The demand for business and leisure travel in recent years has been exceptionally high, and, rather than disappearing, this demand has simply been held in check by the circumstances of the pandemic. Many industry commentators point out that the frustration of limited travel, lock-down restrictions, and closed borders means that demand is bursting at the seams.

People want to get away from the stress and anxiety of the current health crisis and get back to the lives they had before COVID-19 struck. They want their family vacations, honeymoons, birthday trips, weddings, conferences, and getaways.

This could set the stage for a flood of tourism travel as soon as it’s safe enough, which could be critical to the hospitality commercial real estate industry's rebound. While many businesses may have to close their doors or redefine their business while they wait, those that survive can likely expect a surge of new business even greater than pre-pandemic times. The residential real estate market will continue to boom and as such moving during the pandemic will continue full steam ahead.

Final Thoughts For Commercial Real Estate in 2021

2021 is a tightrope walk for the commercial real estate industry and the hospitality industry in particular. The demand is there. The opportunities exist. The investors are waiting. It is a matter of taking this moment to reposition for a changing world, building resilience for what lies ahead, and holding our breath on the one thing we cannot predict - that no more curveballs lie ahead in the drive to contain the COVID-19 pandemic.

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About the author: The above article on the predictions for the commercial real estate market in 2021 was written by Colin Hannan.

Colin is a Co-founder of Proven Partners, an international real estate consultancy firm specializing in the hospitality and hotel industry. He is passionate about helping real estate and hotel developers create game-changing projects that stand out and excel. He does this through a combination of his specialized marketing expertise and hands-on industry experience.

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