The pandemic economy has put financial planners, budget builders, and asset managers to the test. Minimizing risk and optimizing growth in a time of rapid disruption requires technical skill topped with a healthy dose of creativity. With crisis comes opportunity, and COVID-19 has been no different.
Our flexibility has helped Pan American thrive in 2020. It hasn’t always been easy. Some of our clients have been harder hit than others by the rolling impacts of shutdowns, job losses, and health concerns. As we look toward 2021, we’re studying economic forecasts to help our clients position themselves for stronger financial performance.
These are some of the trends we think will have a big influence on the real estate market in 2021:
- A reopening boom? For all the dour economic news of 2020, it was easy to overlook an important statistic: the U.S. economy expanded by an annualized rate of 33.1 percent in the third quarter as COVID restrictions were lifted. Although GDP is still way behind what everyone hoped heading into 2020, a post-pandemic “boom” might be on the horizon—at least for some industries.
- Rapid change for retail. Bankruptcies by established brands like Chuck E. Cheese, GNC, J.C. Penney and others have made headline news in 2020. For owners of retail properties, the challenges facing anchor tenants like these and the small businesses that surround them are likely to create a turbulent rental climate in 2021. Add to this the jaw-dropping pace of Amazon’s market share growth and there’s plenty of reason to think that commercial properties will face continued uncertainty.
- “Cheap” money. Offsetting the problems caused by businesses that haven’t done well during the pandemic is the expected continuation of very low interest rates. Combined with high asset prices in the stock market and across the real estate marketplace in general, businesses and individuals who are in the right position will be ready to step into the right opportunity.
- Unemployment will linger. Jobs in some sectors, like hospitality, may not come back even as the economy picks up. The pandemic has accelerated the adoption of automation technologies to replace human workers in many jobs. Owners of residential properties have already shouldered a significant burden from lost revenues due to pandemic-related income losses. We expect that trend to continue to be a problem in some markets.
- Migration to lower-cost areas. Another trend influencing rental markets, especially in Southern California, has been movement from high-cost areas to lower-cost areas. This trend is partly fueled by job losses and lockdowns limiting the appeal of expensive urban areas. It’s also sparked by many employers embracing remote work as a long-term staffing strategy.
- High home prices. With the value of single-family homes in many parts of California continuing to rise, multifamily residential properties should continue to remain competitive. To offset migration and employment trends, taking active steps to improve retention and enhance attractiveness to potential tenants will be especially important.
Making sense of it all
The key is to recognize the right time for adopting fresh strategies to respond to trends. As is true every year, turning projections into practice isn’t always straightforward. Few properties are subjected to trends heading only in one direction. When a particular market metric is heading into alarming territory, another one might be pointing toward a bright future.
No analysis of economic trends is complete without a careful analysis of local conditions. An asset’s performance relies heavily on what’s happening around it. This extends all the way to the granular level of each tenant’s unique circumstances. A generally bad outlook for a tenant’s industry as a whole means nothing if that tenant has found a way to buck the trend. That’s why Pan American builds its processes on a foundation of relationships, so we can access the most important information for making better decisions.
How are you feeling about your properties heading into 2021? We’d love to hear from you and to share our ideas for how to position your assets for solid performance. Call us at (888) 754-9700 or send us an email to get a conversation started. We wish you a very happy New Year!