NAR Panel Predicts Economic Recovery from COVID Will Fuel Growth in Some Commercial Markets in 2021

NAR Panel Predicts Economic Recovery from COVID Will Fuel Growth in Some Commercial Markets in 2021
NAR Chief Economist, Lawrence Yun

WASHINGTON—A panel of leading real estate economists predict that with continued COVID-19 vaccination efforts nationwide, an improving economy will strengthen some commercial real estate markets in 2021, although some others will continue to struggle from pandemic-related demand issues.

“Unlike the surprising residential real estate market, which soared in the 2020 pandemic year and momentum looking very strong in the early part of 2021, commercial real estate has been challenged,” said National Association of Realtors Chief Economist Lawrence Yun. He cited rising vacancy rates in office, retail and hotel sectors and difficulties collecting rent as some of the key issues facing the commercial real estate sector.

However, Yun predicted that the U.S. economy will continue to improve in 2021 and expects the commercial real estate market will follow.

“A recovering economy and the near certain job growth will steadily lead to the absorption of commercial properties,” Yun said. “The apartment rentals market could once again experience very low vacancy rates by year’s end.”

Yun was part of a panel assembled on March 10 during NAR’s Commercial Real Estate Forecast Summit that included: Calvin Schnure, Nareit’s senior vice president of research and economic analysis; Gay Cororaton, NAR’s senior economist and director of housing and commercial research; and Brandon Hardin, NAR’s research economist. Akiko Matsuda, a reporter with the real estate trade publication The Real Deal, served as the moderator for the panel discussion.

Yun detailed some potentially troubling signs for the residential market, including higher lending rates, lower financing activity and softer buyer demand of late.

While noting that the passage of the latest COVID stimulus —the American Rescue Plan—will bolster the economy, “That is not free lunch,” Yun said. He noted that the new $1.9-trillion plan, along with previous COVID relief measures, have prompted the increase in mortgage interest rates the markets have seen recently.

Calvin Schnure, Nareit’s senior vice president of research and economic analysis, said that REITs have performed well overall in spite of COVID-19, although some variance exists depending on the market segment.

“The impact of the pandemic on commercial real estate varies widely across property types,” Schnure said. “REITs have been resilient due to their strong balance sheets and liquidity and solid operating fundamentals when the crisis erupted.” He added, “Some sectors have been harder hit, especially lodging, resorts and retail REITs, while sectors that support the digital economy—including data centers, cell towers and industrial and logistics facilities—have enjoyed a surge in demand.”

He related that he expects office rents to continue to decline in major cities, but will likely be flat in secondary cities.

The office rent declines in the major cities, such as San Francisco and New York City, is “suggesting that work from home is having a much bigger impact on more expensive, gateway large metro areas,” Schnure said and is negatively impacting the multifamily markets in major cities, while benefitting secondary city markets.

Schnure did say that recent data is indicating that some former city residents who sublet their units for six months or longer, are returning to their former homes.

Gay Cororaton, NAR’s senior economist and director of housing and commercial research, expects the multifamily, industrial and retail sectors will drive the commercial real estate recovery this year, but noted it may take longer for office occupancies to reach pre-pandemic levels.

“Multifamily and industrial remain the commercial market’s bright spots,” Cororaton said. “With wide differences in commercial and apartment rents across metro areas, development will turn to less expensive markets that are closer to the gateway cities.”

He later noted that office vacancy rates will remain elevated, even with the expected full office-job recovery by the middle of 2022, due to some shifting toward what he termed as a “nationwide work-from-home culture.”

Brandon Hardin, NAR’s research economist predicts continued retailer fallout as tactical store closures and bankruptcies increase. He added that adaptive reuse and conversions of retail properties will create opportunities for investors and developers going forward.

Panel Predictions for 2021


• U.S. GDP Growth is forecasted to grow from -3.5% in 2020 to +4.0% in 2021.

• Job gains will grow from -9 million in 2020 to + 3 million in 2021.

Consumer price inflation will increase from 1.3% in 2020 to 2.3% in 2021.


• Retailers will enjoy stronger market fundamentals.

• More consumers will shift to e-commerce,

• Downtown retail/food sectors will improve in the second half of 2021.

• Opportunities will grow in repurposing existing assets.


• Strong demand to continue

• More supply

• Rent growth

• Higher vacancy.

• Logistics facilities are a clear winner from the surge in digital commerce.


Longer-term issues of lack of supply, demographics will re-emerge as transitory impacts of pandemic fade.

• Affordability remains a key issue.


Work from Home to boost flexibility, with some differential impact across major cities, suburbs and other cities. Impact on demand expected to be moderate.

Other CRE Markets to Watch

Senior Housing: Vaccinations will revive move-ins. Cost pressures and labor scarcity remain, but Baby Boomer demographics are looming.

Data Centers: The need for servers for cloud computing surged in 2020 and will continue to grow.

Cell Towers (infrastructure): No slowing in sight for voice and data communications.

Self-Storage: The surge in construction in 2016-2019 did not approach market saturation; small size of geographic markets leaves many pockets untapped.

Lodging/Resorts: Leisure travel to recover as vaccines allow “catch-up” family visits and resort get-aways. Business travel may be dampened by Zoom.

Specialty: The REIT structure has proven effective and flexible with many property types outside the traditional core CRE.

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