Publications
With 2021 in our rear-view mirror, it’s time to reflect on changes that occurred in the commercial real estate industry and trends to come. The Counselors of Real Estate, a group of veteran real estate group professionals, issues an annual report on what they believe are the top ten issues that will affect real estate in the coming year.
That list included major issues like the bifurcation of capital markets and political polarization.
We believe the following issues are particularly relevant to the New England region:
The ripple effect of COVID-19 will continue to impact real estate for years to come. While it was previously estimated that 40% of workers in Greater Boston would remain out of office until at least early 2022, with the rise of the Omicron variant that return to in-person work is being further delayed. Boston Mayor Michelle Wu directed all city employees who can work remotely to do so for two weeks in January as the city struggles to keep schools open and essential services running. These directives impact the amount of space companies need for their workforce in places like downtown Boston and how they will use the commercial real estate they retain. Many companies may continue to hotel their space, offering employees a spot to plug in laptops when they are in office but not much more than that. Subleasing is also likely to continue to rise as landlords look for steady income and prime tenants look to reduce their overhead expenses. Despite the need to work separately for health and safety reasons, it’s our belief that companies will continue to come up with creative solutions to bring employees back together to increase camaraderie, boost productivity, and renew human connections.
During 2020, US e-commerce increased 44% and it’s likely that the number remained sky high in 2021. While it’s been predicted that online sales will continue to soar, no one could have foreseen the dramatic increase brought about by the global shutdown caused by the COVID-19 pandemic. This demand was further complicated by the supply chain crisis that unfolded in 2021 and the need for more commercial real estate to house these goods. Every day more commercial real estate is being developed or converted into warehouses or distribution hubs. The demand for “same-day” delivery will necessitate these large properties to be set in central locations, no longer relegated to outskirts of suburban office parks. With these kinds of properties will come an increase in truck traffic and cities and towns will be forced to negotiate carefully with property owners to mitigate such issues.
Rents and sale prices for industrial properties will remain high. In 2020, though other types of rent fell, industrial real estate rent continued to climb worldwide. An increased demand for industrial real estate and accompanying rent hikes further illustrates the strain that the supply chain is under. Until demand levels off or capacity increases, consumers will continue to see reduced availability for goods, slower delivery times, and increased costs.
Where adaptive reuse was once focused on renovating historic properties for new purposes or reducing neighborhood blight, it is now centered on dealing with the large parcels of real estate that were formerly Big Box retail stores or suburban shopping malls. The pandemic put a spotlight on what consumers truly see as essential and in large part that meant meeting their daily needs through online shopping. Transforming these once vital spaces into something usable now will require public-private partnership and consensus. It’s expected that many of these spaces will become mixed use properties to make work-life balance outside of the city more appealing as the urban flight continues.
Real estate will continue to adapt and grow with the needs of the Greater Boston area as we recover and restart after the worst of the pandemic. Opportunity abounds in many sectors of real estate, especially when creative thinkers and visionaries design new solutions for this reawakening economy.
See the full report on the top ten issues from The Counselors of Real Estate.
David Barry Connolly and John H. Sokul Jr. are both partners at Hinckley Allen and serve as Board Members for the New England Chapter of the Counselors of Real Estate, Boston, MA.
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