Here is what commercial real estate experts predict for 2021

Here is what commercial real estate experts predict for 2021

Here’s what commercial real estate experts predict for 2021

Article originally posted on AZBigMedia on January 12, 2021

There was a lot of bad news to go around in 2020, as many businesses in Arizona were affected by the COVID-19 pandemic. As our attention turns to what lies ahead in 2021, it’s still not quite clear how much damage the pandemic had on the various commercial real estate sectors.

In the Greater Phoenix multifamily, industrial and land markets, that damage was minimal, as those sectors enter 2021 with strong momentum that looks like it will carry well into next year. The office and retail markets, however, weren’t so lucky. How people work and buy goods during a pandemic continue to evolve, and both sectors head into 2021 with a lot of questions about how much space will companies use in the future, and will people return to the store after spending a better part of a year doing their shopping online.

AZRE Magazine talked to experts on the various commercial real estate sectors to get their insight on what we can expect in 2021.

Commercial real estate in 2021 – multifamily

The Greater Phoenix multifamily market appears to be very healthy heading into 2021, despite a 2020 that caused many players in the market to pause as they gauged the effects of the pandemic restrictions.

“We started the year with a hot first quarter. When COVID-19 hit in Q2, Phoenix multifamily activity came to a screeching halt,” according to Alon Shnitzer, senior managing partner at ABI Multifamily. “Everyone wanted to wait and assess the market to see how things were going to pan out. When it became clear Phoenix was a hot destination, and rent payments were holding steady, activity began to pick up in the third quarter. As for the fourth quarter, it’s been a blistering hot market. ABI Multifamily currently has 40 properties in escrow.”

One negative factor caused by the pandemic appears to be new product in the pipeline, as new construction is well off of the 2019 pace that saw more than 6,000 new units delivered. That slightly slower delivery pace will have an effect on rental rates, as well as unit sales prices. According to the Kidder Mathews Q3 2020 Multifamily Market Trends Report, average asking rents in the market have gone up 3.65 percent to $1,122.

“Apartment sales in Phoenix dropped to about half of their normal levels in Q2 as shutdowns and uncertainty created a challenging market,” said Steve Gebing, partner at Institutional Property Advisors, a subsidiary of Marcus & Millichap. “Deal activity has already started to recover, a trend that will be supported going into 2021 with positive demographic and economic drivers, along with historically low interest rates spurring investment sales.”

Gebing points out that the state is seeing its population boom continue, and it may be accelerating due to the pandemic driving many people out of high-density coastal cities. Gebing feels that the demand for lower living costs will support demand for rentals in the West Valley and for Class C product more broadly across the metro.

“Workforce housing, which is already in short supply, will see greater demand due to economic uncertainty,” Gebing states. “These trends have and will continue to push occupancies and rents higher on Class B and C apartments across the Valley.”

With the majority of factors working to increase demand for multifamily products, it appears poised to perform at record high levels in 2021.

“Based on what we’re seeing, multifamily is expected to remain the top product type of choice for investors, with increasing momentum going into 2021,” adds Shnitzer.