An unprecedented year ahead


CRE Leaders Share What to Expect in 2021

The pandemic upended so many aspects of commercial real estate and 2021 will continue to look and feel different. With so much uncertainty ahead of us, what can we expect this year? We asked some of the best in the business about what they learned in 2020 and how they're approaching the year ahead.

1. We rebuild with an emphasis on equity.

“I am hopeful that 2020 has shown us how connected we truly are and that, in the grand scheme of things, we really are all in this together. Perhaps we can come out of this crisis with greater respect for, and understanding of, those who are truly essential.

Many essential workers have been undervalued and under-respected for far too long. The grocery and corner store workers, the bus drivers and cleaning staff, the cook, and delivery people keep our economy and society running in ways that are normally underappreciated.

When we talk about the need for affordable housing and economic opportunity, it’s these very workers, who have been risking their health for the past 9 months, who are most in need of safe, accessible, affordable housing. As we move forward as industry and community, let’s remember that those at the bottom of the income scale frequently hold undervalued jobs that are incredibly important to all of us. As we enter 2021 and beyond, I hope we can rethink and rebuild our economy in a way that is more equitable so we can all benefit from the gains and thrive into the future.”

Michelle Landers, Executive Director @ ULI Boston
Bryan Koop, Executive Vice President @ Boston Properties.

2. Businesses and government forge better partnerships.

"There is certainly evidence of a greater understanding of the importance of our regional economic engine - how it works and the benefits of its long term health. A well-running economic engine is not only good for business but also good for the community.

Our schools, police, firefighters, health services, and government services are disproportionately funded by business (example: CRE taxes). But it is not only state, city, and town services, it’s our charities which are primarily funded by businesses that play an important role in supporting the entire community, especially those most in need.

We are seeing evidence of greater cooperation of business and government working to “revive” and get our Boston region economic engine firing on all cylinders again. A greater partnership-cooperation between government and business will be essential in 2021. A healthy economic engine and community are absolutely linked and more apparent than ever."

3. Opportunities to reposition commercial assets.

“At Pugh Management, we are excited about 2021. We expect the number of development opportunities to increase dramatically and investor sentiment to move away from some of the risk-aversion that prevailed in 2020. We also believe interest rates will stay low for most of the coming year. If you combine that situation with dramatic shifts in space demand and usage, then the redevelopment of commercial assets becomes incredibly attractive. One strategy we think makes economic sense is the redevelopment of hospitality assets into housing or distribution centers. From a value creation standpoint, these opportunities can provide significant upside. To start the year off Pugh Management is working on one of these projects now as a conversion from an obsolete motel to a new, ground-up last-mile distribution center in Boston. Not only does this strategy provide much-needed tax revenue, but it also removes a blighted neighborhood condition. We expect to see more of these types of opportunities arise over the year. From a geographic standpoint, investors and developers will continue to see opportunities in Florida, Atlanta, Texas, Charlotte, and the Midwest. Towards the end of the year, due to widespread Covid-19 vaccinations, we think some of the depressed geographies, such as San Francisco and New York City will begin to present more attractive investment options. Nationwide hospitality, retail, and office owners are going to need to get creative with their assets. Owners need to re-think how they use their properties and how they can generate more revenue. Movie theaters, older office buildings, and shopping malls will continue to drift towards obsolescence. For all these reasons, we believe the year 2021 will be full of opportunity for those willing to reposition and redevelop commercial assets."

John Pugh, Family Office Real Estate Development Partner @ Pugh Management
Zach Aarons, Co-Founder and Partner @ MetaProp

4. The office returns, hybrid-style.

“For next year, especially as the vaccine proliferates from millions to billions of people inoculated, I would love to see us come back to a sense of "normal" but without losing some of the practices we have adopted during the quarantine. I think we realized in 2020 that while aspects of working from home can be beneficial, few people want to do it every day. So 2021 will require more of a hybrid approach to work and life.

We envision a couple of days per week in the office, a couple of days at home, and a couple of days at a "third place" location that is somehow integrated with the company and consistent. We will see companies hiring from all over the world and learning how to work across time zones and re-imagine corporate communications culture.”

5. Adaptability and flexibility will be the winner factors.

“Pandemic-triggered business shutdowns laid bare the property industry's shortcomings, exposing their vulnerability to sudden change. But the most successful owners, operators, and occupiers will embrace the challenge in 2021 and work to make their buildings more adaptable and their workspaces more flexible.

Expect to see accelerated adoption of technologies like energy management tools and tenant engagement platforms and a continuing trend toward more flexibility in leases, workforce strategy, and logistics. In addition, I think we will see an increase in health and wellness initiatives as owners adopt (and tenants demand) a "duty of care" mentality.”

Travis Barrington, Co-Founder & CEO @ Propmodo
Sara Shank, Managing Director, Global Head of Innovation @ PGIM Real Estate

6. Pandemic-driven proptech adoption stays strong.

“2020 accelerated innovation at PGIM Real Estate and we expect that 2021 will be no different. As PropTech continues to gain unprecedented traction and its use cases transcend different asset classes and regions, we are more closely coordinating across our internal innovation teams globally to ensure that we’re staying at the forefront of advancements in the space.

2021 will also be a breakout year for exposing and leveraging our proprietary data, which has been enhanced following the official integration of our debt and equity businesses earlier in 2020. Having access to this comprehensive data set will ultimately deepen our industry insights and create greater efficiencies for us as a firm.”

7. Tech makes advocacy for affordable housing easier than ever.

“The past year has certainly given us much pause in our local municipal engagement work and pivoted the way in which our community-led coalitions approach their advocacy. People are finally making the connections between housing and other social determinants like health, transportation, and racism among other overlapping concerns. In fact, advocates are more boldly connecting opportunity gaps to historical policy and practice. Additionally, the pandemic has made engrained technology into our new normal. The broad acceptance of these tools has expanded the opportunity for community engagement forever, and removes barriers of engagement, allowing for more diverse voices at the table. Housing strategies that seemed too optimistic, or out of reach are now seemingly more attainable solutions."

Whitney Demetrius, Municipal Engagement Initiative Program Associate @ Citizens’ Housing and Planning Association
Doug Arsham, Managing Director @ Mill Creek Residential Trust LLC

8. Multifamily pivots to address new buyer priorities.

"The long term changes as a result of the pandemic are still really up in the air. Like most topics these days, if I said I knew what the next year looks like (or the next 30 days for that matter) I wouldn’t be telling the truth. So with that caveat:

Community programming and design will continue to shift in support of the WFH environment. This will be coupled with more access to the outdoors, with associated programming and increased “shoulder season” usage. We see this shift in all of our markets, including cold-weather regions like Boston. Units will continue to grow (think 1 BR +, more 2BR) to respond to the demand for additional space

Suburbs continue to be a hot market, and we are making investments in those communities. But, the City is not dead, not by a long shot. Although it is harder to make some high-density downtown deals make sense, we still believe the energy and opportunity of living in the city will support this market.

For example, Boston is still incredibly unique and has one of the most diverse economies in the US. The housing crisis has been exacerbated in the Boston region during the pandemic, which we expect will drive demand for multifamily at all income bands, especially in the affordable market."

9. Affordable housing is recognized as a key driver of healthy communities.

“At the state level, there's increased recognition of the critical role that a safe, healthy, and affordable home plays in protecting ourselves and our communities. Our homes have become virtual classrooms for our children, offices for our workers, and places where we can practice social distancing to help prevent the spread of the virus.

However, too many are at risk of losing their homes because of job or income loss. In response, the state has expanded programs and stepped up its investments in emergency housing assistance, rental vouchers, public housing, and legal assistance for those facing evictions.

In the next year, we will have to continue to expand these resources and make sure they are reaching those hardest hit by the virus, including seniors, persons with disabilities, and communities of color. The virus has also made even clear that our communities must do more to provide homes that are affordable to all income levels. Our communities need homes for all our 'essential' workers that provide services we all rely on."

Eric Shupin, Director of Public Policy @ Citizens’ Housing and Planning Association
Franco Faraudo, Co-Founder @ Propmodo

10. Outdoor space steps into the spotlight for CRE owners.

“I think we will see a lot more attention paid to outdoor spaces. Even after we have a vaccine, we will likely all remember how nice it was to shut down our streets to traffic in order to create socially distant areas and outdoor dining. Maybe I am biased because I live in Southern California where the weather is nice for the large part of the year, but I think most of us would like to be outside more.

The property industry has focused on indoor spaces and largely neglected the areas around buildings which has the effect of compartmentalizing cities and therefore our society.”

JOIN US FOR OUR UPCOMING WEBINAR

Ground-Up Development in 2021: Looking Ahead & Planning Accordingly

How will the events of 2020 shape development in 2021 and beyond? Join us to hear from a panel of developers as they share their plans and predictions for the year ahead.

Best wishes for a better, healthier year in 2021!