2020 Real Estate Recap & 2020 Predictions By Handsome.
2020 was interesting to say the least. Some people created new businesses or saw their business take off, while others were forced to close or are just hanging on. While the COVID-19 crisis was heartbreaking in many ways (my prayers go out to anyone who lost a loved one), it's my opinion that in business the pandemic poured gasoline on a process that has been happening over the last decade; the digitalization of our society.
Pick your cliche saying: With great instability comes great opportunity or Nothing lasts forever or perhaps my favorite by Steve Jobs, "death is life's change agent. It pushes out the old to make way for the new" from his commencement speech at Stanford https://www.youtube.com/watch?v=UF8uR6Z6KLc The reality is human beings must survive and we have always evolved to do so, 2020 was no different. Change or die...it's really that simple. Real estate trends for 2020 were more of the same with a few interesting twists thanks to government regulation.
Retail has been hurting for quite some time, but really crashed hard during the pandemic. Restaurants took the biggest hit with only surviving owners being those who were able to pivot quickly and provide delivery services. Retail converted to medical continues to grow provided you have a great location and/or excellent parking.
Industrial was on fire before COVID-19 and has since exploded. As main street retail locations become less and less necessary and internet based companies like Amazon have grown, the demand for industrial has really taken off. Vacancy rates are at all-time lows as rents and prices rise. The only issue I see is that cost of construction has risen to the point where new deals don't pencil out.
Office got slammed this year. With most people working from home I don't think the office market will ever be the same again. Companies and employees have realized that working from home (even a few days a week) lowers costs and makes for happier employees. In many cases, productivity has gone up. I believe that people will begin to return to their offices over the next 1-2 years but in a lessor capacity. This will lead to companies downsizing their office spaces and ramping up technology to stay connected.
Apartment investors have experienced a mixed bag depending on location. There has been a mass exodus from every urban area to the suburbs resulting in huge vacancy rates in some places and low inventory in others. At the same time, certain states are not allowed to evict tenants for any reason and it's causing massive issues that many smaller landlords will not be able to recover from.
Construction costs have gone through the roof! Supply chain issues, tariffs, and natural disasters have caused a 30% increase in new construction costs and a 20% increase in renovation costs in 2020. This has caused a number of new construction deals (both commercial and residential) to be sidelined. I myself turned down 28 land deals in December alone because the increase in construction cost made the deals not pencil out.
What to expect in 2021? In my opinion more of the same. People will continue to leave urban areas in favor of more space and a more affordable lifestyle. While suburban residents in states such as New York, California, and Chicago will start to migrate to states such as Florida, Texas, North Carolina, and Nevada. These states offer a lower cost of living and a better climate. The residential market will stay very strong due to low interest rates and a low supply. Industrial will continue to climb while office drops. I think there will be a lot of opportunity in the small apartment building market as mom and pop owners won't be able to meet expenses.