North Bay commercial real estate market to rebound in 2nd half of 2021

Looking back, the initial forecast for 2020 was for slowing growth. But that changed dramatically in March due to the graduate impact of COVID-19 on the national and local economy. Full effects of the slowdown were not realized until April–May.

By March, the shutdowns and sheltering in place impacted restaurants and retail the hardest. Confidence fell and positive consumer and produce attitude reversed.

The stock market collapsed, and the fed responded by lowering interest rates. The market gradually clawed back initially about 70% of the loss and by the end of the year hit a new record.

However, the main street economy continues to experience record unemployment and the biggest drop in gross domestic product since the Great Depression 90 years ago.

And that is where the economy was at the end of 2020.

So, the production side of the economy is tenuous and barely recovering while stock market and real estate assets are buoyed up by low interest rates. Consequently, the low interest rates in mortgage and declining cap rates have kept the commercial real estate market alive and well.

While leasing, which is a reflection of the Main Street market, is struggling but alive, the strongest submarket is industrial, which still has some life in it.

The office and retail commercial property markets for leasing have been hit hard. It will take months if not years to rebound. Both leasing markets will be structurally different going forward. Offices will require more space per employee but perhaps fewer people working in the office. Working from home requires a higher level of digital equipment and support.

The retail services sector is still stable for essential businesses like groceries and hardware but devastated for nonessential services like restaurants, bars and fitness facilities.

While there are headwinds ahead in 2021, we remain cautiously optimistic, as we believe the user and investment market will respond well to renewed consistent leadership at the federal level, both for coordination of the response to the COVID pandemic and the economic dislocations that have resulted.

We hope for a gradual return to a secure and confident consumer and investor as 2021 progresses. But nonetheless, the commercial real estate market will continue to ebb for at least the first two quarters of 2021.

Al Coppin is president of Keegan & Coppin Co. Inc./Oncor International.