Moody’s Analytics recently released its forecast for rents in 2021 and beyond. The results were not that surprising considering the impact of the pandemic on businesses. Their report spares no sector, from office to retail space. Moody’s provides financial intelligence and analytical tools to help business leaders make better, faster decisions.
The company evaluated eight different property types across several submarkets in the United States. Let’s evaluate a few of these property types and explore the post-pandemic rent forecast.
Moody’s first looked at office space and found that vacancy rates will increase 19.4% and remain there until 2022. Similarly, the average effective office rent is projected to decline 7.5% in 2021 and stabilize there in 2022. Based on their analytics, Moody’s does not anticipate rents will increase to pre-pandemic levels until at least 2026. It is understandable that the market would take years to adjust, considering a significant portion of the workforce has shifted to an at-home model. Read more about the at-home shift, with my breakdown.
Turning to apartment rents, Moody’s projects a 1.8% decline in 2021. This is a moderate decrease from 2020 when rents fell 3.0%. In looking at the data, Moody’s predicts that apartment rents will begin to recover in 2022. This is likely the result of stringent COVID-19 eviction moratoriums ending and similar laws expiring.
Next is retail, which was dealt a devastating blow due to stay-at-home orders throughout the country. Over the course of the past year, people have relied heavily on e-commerce. As a result, the American people are significantly less willing to return to traditional retail. In 2020, neighborhood and community shopping center vacancies reached 10.5%. Moody’s estimates that those vacancies will rise to 12.7% this year. Consequently, those business owners interested in opening a retail store will almost assuredly delay their purchase for the time being.
The only bright spot regarding all these forecasts is warehouse/distribution sector rents. Those are expected to grow 0.2% in 2021 before growing an additional 1.7% in 2022.
As an investor, it’s important to understand these national trends, as well as the trends in your area when contemplating the purchase of any of the above property types. The timing of your potential purchase in lieu of changing trends is significant. Making an informed decision ensures you choose wisely and plan smartly as we emerge on the other side of this pandemic.