As we sit on the edge of a New Year, we want to take a moment to look back at what made 2020 so unprecedented.
The year was expected to be nothing less than exceptional for the business world. The labor market was strong, with a marked labor shortage (caused by the 50-year record low unemployment rates). We closed 2019 believing that the greatest risks to the national economic well-being were trade policies, the fed, and politics.
Then the Covid-19 pandemic struck. We started to focus on new threats like contact tracing, essential & frontline workers, flattening the curve, P.P.E., remote learning and working, and how to juggle it all at once.
Here is a brief overview of how this shift impacted the commercial real estate industry and where we stand now:
The Year at a Glance
In 2019, the office market was at a peak with almost 60 Million SF in absorption across the largest cities in the nation. However, we have now witnessed this number being cut almost in half. This shrinking absorption was primarily due to the implications of Covid-19 in the office environment. The pandemic led to corporations deferring planned expansions, as well as reducing office footprints, or shuttering locations altogether.
The industrial sector seems to be the only part of the commercial real estate industry that has emerged largely unscathed. Leasing activity hit a record high in the third quarter, measuring at over 215 million SF. The inventory has increased by 1.7% year over year and many major markets still recorded significant increases in occupancy.
The Office Reimagined
Offices globally evaluated their space and operations in a new light. Many have already adopted touchless technologies, such as bathrooms with light-activated sinks and hand dryers, all in the name of energy efficiency. Now, these technologies that were previously seen as a nicety – are the foundations on which the new office space will stand. Thanks to the pandemic the workplace is now evolving at a faster pace. This major shift towards efficient workspaces will promote the health and wellness of employees as well as reducing energy costs.
Waking up to Innovation and technology
Some of the largest areas of innovation in the industry include tenant experience, augmented reality, artificial intelligence, and other PropTech platforms. These tools were not developed in response to the pandemic but rather accepted into an otherwise slow to evolve industry because of the crisis. Technology adoption and innovation in the sector is, uncharacteristically, fast-paced in an effort to mitigate the risks associated with the challenges brought on this year. Asset Management and Tenant Representation firms have both reimagined their businesses to operate on digital platforms, with new portals, databases, and tools designed to operate seamlessly for collaboration with their clients.
Warehousing and cold storage
The warehousing and logistics sector was further entrenched, as e-commerce became part of our daily routine through ordering almost everything online and expecting it to arrive instantaneously. Over the course of the last few years, the online grocery sector has seen a significant annual surge in sales of over 20%, which translates to over $6 billion increase in sales from 2019 alone. This explosive growth has boosted the demand for all various temperature-controlled facilities, including freezer/cooler and refrigerated warehousing.
The effects of COVID-19 on the real estate sector have been eye-opening, testing the resilience of every asset class when compared with the previous year. For many CRE industry leaders and firms across the globe, challenging times have historically forced the industry to adapt and be nimble. Today that balancing act focuses on business recovery, identifying new opportunities, and customer/tenant engagement. With multiple vaccines being distributed throughout the world and animminent gradual return to normalcy, we envision increased agility, collaboration, transparency, and focus on more purposeful human connections in 2021.