Not surprisingly, most of the commercial real estate news from 2020 focused on the effects of COVID-19. It’s impossible to avoid some discussion of the pandemic’s influence over commercial real estate, but many things other than COVID-19 happened to the industry last year. The following stand out as some of the top commercial real estate news stories of 2020.
COVID-19 Pandemic Affected Different Types of Commercial Properties in Diverse Ways
The pandemic had an immediate effect on commercial property values. The value of retail properties started to fall during the beginning of 2020. By the end of the year, they have lost about 10% of their value. Unfortunately, the retail sector may not reach its pre-pandemic value until 2024.
Office spaces didn’t start losing value until mid-2020. By the end of the year, they had lost about 5% of their value. Luckily, forecasts show that office properties should regain their value by 2022, presumably when most remote workers have gotten vaccinations and feel safe returning to their workplaces.
Apartment values followed a path similar to office spaces, although they lost about 4% of their overall value. They should return to their pre-pandemic values by 2022.
COVID-19 didn’t seem to harm the value of the industrial property at all. In fact, industrial property values increased by about 5% over the year. Some manufacturers shut down for a brief period to make their workspaces safer. Since the activities that take place in industrial buildings require in-person work, the property values moved along while the rest of the world struggled. Projections show that their values will continue increasing over the next several years.
It Looks Like People Have Chosen Suburban Over Urban Lifestyles
Cities with high population densities suffer enormously during the beginning of 2020 when stores and restaurants closed, essential products became scarce, and few people felt confident leaving their apartments.
New York City might have experienced more turmoil than any U.S. metropolis. Anyone who could flee the city did so as soon as possible, a decision that might influence the city’s real estate prices over the next several years.
Other evidence shows that many people have chosen suburban homes that give them more space to spread out. Analysis from five major U.S. cities shows that merchant foot traffic fell 70% in downtown areas.
No one knows whether the trend will continue. As people recover from the anxiety of living during a pandemic, they might return to bustling downtown areas. On the other hand, they might grow accustomed to the quiet and lower prices of suburban and even rural areas.
Developers Invest in Cold Storage Facilities
COVID-19 disrupted supply chains around the world. In response, many real estate developers have decided to invest in cold storage facilities. Cold storage can cost more to build and operate, but it creates more space for frozen foods and other perishables.
Some developers had expressed interest in additional cold storage in recent years. Until 2020, there just wasn’t a strong market demand that required more real estate with cold storage facilities. People have developed new consumption habits over the last year, though. Those habits will not break easily, which could mean that developers investing in cold storage stay ahead of their competitors by taking advantage of an emerging trend before it solidifies.
Paramount Group Sells Its 1899 Pennsylvania Avenue Office Property
Paramount Group has long owned a dazzling office building at 1899 Pennsylvania Avenue in Washington, D.C. The owner has talked about selling the property before, but a deal did not emerge until early 2020.
When Paramount bought the building in 2010, it paid KanAm Grund $151.1 million. Unfortunately for Paramount, it did not recoup its investment during the sale. It had originally planned to sell the 190,955-square-foot office building for $115 million. Effects of the coronavirus forced the owner to lower its price by $12 million.
Amazon Leases Space in Brooklyn to House Its New Recording Studios
Amazon deepened its commitment to content creation during September 2020 when it leased 40,000 square feet of space at 25 Kent in Williamsburg, Brooklyn. The company plans to use the space to house recording studios that it will use to become more competitive in the streaming music industry.
Amazon Fashion started leasing a nearby location in 2013 and started using it as a fashion photography studio. At one time, the company had considered 25 Kent for the site of its second headquarters. The deal ultimately fell through, but Amazon maintains a growing presence in the area.
Real Estate Investors Have Their Eyes on the Future
Many real estate investors believe that 2020 created unlimited opportunities for commercial investments. Some of the trends that they plan to track–and profit from–include:
- The increased need for industrial real estate as 3D printing becomes more popular.
- California’s skyrocketing industrial land prices, which are creating interest in other cities, including Phoenix and Reno.
- Embracing site-election analytics to make better decisions about buying, selling, and leasing commercial real estate.
- Watching corporate relocations to plan for surges in residential and commercial prices where new headquarters get built.
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