It’s time for another list of predictions that we can tear apart. Today, the top 10 commercial real estate predictions for 2021. We’re halfway through the year already, so let’s see just how accurate these really have been so far on today’s podcast.
I love tearing into these crystal ball projections to see what I agree with or not. A law firm in California, Allen Matkins, conducts an annual forecast event and publishes the top trends for the coming year according to CRE “experts”. The list we’ll discuss today was created in November 2020 – 8 to 9 months ago. How much do you think will look brilliant in hindsight versus what will look really stupid? By the way, shout out to The Tenant Advocate, Benjamin Osgood, for posting about this on Twitter. Let’s dive in:
- Rapid but Uneven Market Recovery – they predicted that the recovery has not and will not be uniform. Winners will include logistics, data centers, life science etc. while losers will be retail, hospitality and commodity office. Agreed. This has certainly played out in 2021 so far. I would also say that medical has been a winner in that it appears to be recovering quickly. Overall though, the World Bank increased it’s prediction of global economic growth from 5.5% in January to 6% in May but with large discrepancies from country to country.
- Covid-19 Will Bring a Widespread Expansion of Office Touchless Technology – retrofit to these systems was expected to occur soon from automated lighting, sinks, toilets and elevators to possibly employees having chips or keycards that will activate a lot of their working life. Reminds me of the story about Bill Gates when he built his big home in Seattle about how each member of the family had a lapel pin that would adjust the lighting, AC/heat, music, etc. to the wearers’ preference. I always thought it would be funny if two or more family members walked into a room simultaneously-whose pin would win? I’m sure this prediction is occurring, but I’m honestly not seeing much of it in the buildings throughout DFW. A fair amount of that was happening before Covid hit anyway. I’m just not seeing a rush of new devices in the office buildings I tour clients through.
- Employee Office Culture Will Return – the prediction said culture would help drive the return to the office. Building culture, community, mentorship and apprenticeship occur in the office. They did allow for some hybrid of office and WFH workers. I’m not sure this prediction is coming true on a wide scale basis yet. Some companies are finding that employees are revolting when told they must come back to the office. Surveys I’ve seen predict up to 40% of employees are looking for new jobs and the ability to WFH is high on the reasons why. I think the better prediction is that culture is going to be redefined and changed for most companies and we still don’t know how that will shake out.
- The Office of the Future Will Prioritize Collaboration – they predicted the office of the future will move away from dedicated workspaces and evolve into much more of a living room setting which will free up space for collaborative work to occur. I particularly like the idea of outdoor workspace – you can work together, have lunch, go for a walk – should lead to a better employee, I think. That will depend on the time of year it is, however. Put me outside in Dallas in August and that better be a short meeting. I’m seeing evidence of this idea of the office only being for collaboration and client meetings with some of our clients. It’s a real thing.
- Global Capital is Still Looking to Invest in the US – the prediction is that the US will continue to be a safe-haven for capital especially from Europe, Asia and Australia. In fact, Korean investments have tripled in the US in the last year. I know this helps keep a strong economy, but will we own our own stuff at the end of day? There has always been a lot of foreign investment in US properties. This doesn’t really bother me that much. The bigger area of concern is selling off infrastructure assets like ports that could be tweaked by a foreign power to mess with our economy and security.
- Covid is Accelerating Technology Trends That Were Already Occurring – one panel participant calls this “the great acceleration”. Technological advances were already occurring, but their extreme need is advancing production incredibly. I’m certainly no expert in this area, but I’ve heard of this applying to distribution technology, online retailing, personal fitness (think Peloton and all of their knock-offs) and telemedicine. It’s even affecting the travel industry. While that sector has been hit so hard, some enterprising people have started virtual travel services. I signed us up for a live virtual walking tour of Verona, Italy, the other day and it was most enjoyable.
- Leasing Transactions Continue to be Extremely Slow – remember this was November 2020 so everyone on the panels said the leasing activity had slowed and everyone was sitting on the sidelines waiting for vaccinations to be distributed. “Treading water” one guy said. We have talked about this a lot . There is still a great deal of disagreement between landlords and tenant reps as to how hot (or cold) the market is now especially when accounting for subleases. I still predict it will be 2 to 4 years before this shakes out.
- Renewals Will Dominate the Leasing Market for the Next Year – it’s the only game left. Exactly! This one cracks me up. Leases expire, so tenants have to do something – extend the lease, move or shut down the office. A greater percentage than normal will just extend where they are and probably for a shorter term than normal. We just negotiated a 5-year lease extension for a client that has always signed 10-year leases in the past. And we added a right to give back 1/3 of the space during the lease term.
- Construction is Generally Moving Forward on Schedule – the prediction is that projects already in process are moving ahead with few delays. I agree with this. Once a project starts, they have to finish it or go bankrupt. The developer probably has some of the building pre-leased, so they have to go forward. What has surprised me the most if that there have been announcements of new construction starting post-Covid. If it’s a build-to-suit where most of all of the building will be occupied by one tenant – that makes sense. But I’ve heard of spec buildings or ones with little pre-leasing say they will start anyway since it will take 18-24 months to build. And the world will be all better by then. I’ll be very interested to see if those buildings actually get built.
- Permitting Challenges are Widespread – a lot of city building departments are woefully short of technology and have had employees WFH – and tax base may shrink. We’ve seen this here in DFW. It’s hard to predict how long it will take to get a permit and it’s getting in the way of the deal. It’s starting to ease up though and shouldn’t be an ongoing problem for long.
Bob Gibbons is a Real Estate Advisor & Tenant Advocate (also known as a tenant rep) with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.