2020 was a difficult year, having a profound impact on the country’s economy. However, the vitality of the CRE market and REITs disrupted by the COVID-19 pandemic is projected to improve in 2021. This recovery is contingent on vaccine implementations and pandemic conditions, and will differ amongst sectors. At Primior, we realize that while there may be no certainties, our expertise, extensive research and first-hand performances enable us to help guide our investors. Here are some of our key positions on CRE and REIT outlooks for 2021.
New Investments in Rising Sectors
REITs have predominantly been strong amid the pandemic due strong financial measures taken after the Recession. While shopping center REITs have been unsustainable during the pandemic, big-box retailer, grocery, and healthcare segments are attracting new investments. In addition, investments in warehousing, life sciences, and data centers are expected to grow in 2021.
According to CBRE, US industrial markets, including warehousing and distribution centers have proven to be the most highly sought commercial properties in 2020. This is attributed to rising e-commerce sales during the pandemic. In 2020 alone, the top 100 transactions equaled 103.8 million sq. ft, a 17% increase from the year prior.
Vacancy Rates to Minimally Decline
CoStar estimates that CRE vacancy rates will rise in all sectors this year. This slight increase comes from the unresolved pandemic and is expected to accelerate once workers can return to offices and commercial and multifamily tenants can pay rent. Despite strong demand for logistics spaces, industrial vacancy rates have rose due to increased construction. Vacancies are estimated to peak by the end of 2021.
Recovering from Financial Strains
The year 2021 will mark the journey to recovery for CRE markets and REITs. During the April–July period in 2020, the average collections of rent for office, health care, apartments, and industrial REITs were over 90%. For the shopping center REITs, rents dropped to 50% in April, but steadily rose to 80% in August. Although there will be a wide variation across property sectors, data indicates economic health will stabilize when cases of COVID-19 fall.
For REITs and CRE, the most significant factor is going to be progress against the COVID-19 pandemic. Primior has the experience and objectivity to gather all the information, fit the pieces together and craft an approach specifically designed for your investment goals. Contact us today to see how we can help.