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Five 2021 Commercial Real Estate Trend Predictions

Market outlook for industrial, office, healthcare and retail facilities

2021 connected facilities illustration

It was the best of times, and certainly was the worst of times. Yes, 2020 was a tale of two cities for commercial real estate as retail, hospitality, and office properties became ghost towns overnight, while industrial, healthcare, and life sciences assets proved more resilient to the COVID-19 crisis, thanks in part to a tenant base consisting primarily of essential businesses. Commercial real estate experts predict the growth and contraction patterns experienced this year will continue in 2021, with some sectors expected to rebound faster than others as vaccines become more widely available.

"The most obvious change of the year has been robust development of warehouse and distribution facilities to meet the sudden rise in e-commerce," says Robert Smietana, vice chairman and CEO of HSA Commercial Real Estate. "At the same time, office, retail and hospitality development hit a near standstill as office workers, shoppers and travelers stayed mostly at home because of the pandemic. Developers in these sectors will need to get creative to reinvent these spaces to match how we work, shop and travel going forward."

As firms tailor developments to meet the opportunities and challenges of a post-COVID-19 world, here are five trends that will impact commercial real estate in 2021, according to some of the industry's leading Midwest experts.

Warehouses Are Where It's At

One of many trends accelerated by the COVID-19 pandemic was the widespread adoption of e-commerce. U.S. consumers spent an estimated $209.5 billion online in the third quarter, accounting for 14.3 percent of total sales, according to seasonally adjusted data from the U.S. Department of Commerce. That total is up 36.7 percent from third-quarter 2019, when e-commerce sales made up 11.2 percent of total sales. Not only are retailers and third-party logistics companies increasing their distribution center footprints, but many are also shifting from a just-in-time inventory model to a just-in-case strategy as they seek to avoid the product shortages experienced throughout 2020.

"We estimate the pandemic accelerated e-commerce adoption and direct-to-consumer sales by five years," says Adam Roth, executive vice president of NAI Hiffman. "And once people have experienced the convenience and value of it, many won't go back. In a post-pandemic world, you will see a higher percentage of online shoppers than in the past, which bodes well for industrial real estate long term."

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Key Trends