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Real Estate Forecast 2021

The year 2020 will go down as one of the strangest in history. Never before has the United States and the world deliberately shut down their economies en masse. The U.S. economy, in particular, took decisive steps to “lock down” its economy and to subsidize individuals and businesses to help them through the COVID-19 pandemic.

The “lock down” produced definite winners and losers. E-commerce was probably the biggest winner with a surge in online retail orders. Housing was also a big winner with urban workers fleeing to the suburbs in search of more space to work from home. Some segments of the industrial industry were also winners as distribution centers scrambled to fill grocery stores and online orders. Multifamily housing, although not a significant winner, managed to hold stable with the help of the government providing stimulus payments and restricting evictions.

The biggest losers, by far, were the hotel and entertainment industries. With travel coming to a halt and entertainment shut down, and Zoom meetings increasing, there was no reason for people to travel. Office buildings sat empty as workers stayed home and some retail businesses shut down, some temporarily and some permanently.

At this time, there is uncertainty about the future of the nation. Investors are concerned about the advent of higher taxes, both individually and corporately, and the possibility of higher capital gains taxes and the elimination of 1031 tax-deferred exchanges. On the other hand, Congress seems to have a desire to dole out more stimulus dollars in an effort to accelerate an economic recovery.

With all that’s happening, what can we predict for the real estate industry in 2021? Below is our prediction of how each segment of the real estate industry will perform in 2021.


With migration to the suburbs and lower mortgage interest rates, the demand for residential housing is 2020 was very robust. The forecast from predicts another banner year in 2021, although some forecasters predict a more modest trend. Home sales activity is expected to slow from the frenzied pace of 2020. Home sales in 2021 are expected to rise 7.05 above 2020 levels.

By late 2020, home prices skyrocketed, surging up more than 7.6 percent, year over year. The momentum of home price appreciation in 2021 should continue to grow by 5.7 percent compared to last year. Average mortgage rates should remain around 3.2 percent possibly climbing to 3.4 percent by the end of the year. Single-family housing starts are predicted to rise by 9 percent, which should take some pressure off the housing market. Homeownership rates are pegged at 65.9 percent, which also means rental housing will represent about 34.1 percent of the housing market.

Multifamily Housing (Apartments)

We use the term Multifamily Apartments because all apartments are multifamily housing but not all multifamily housing is apartments. Condominiums and townhome projects are also considered multifamily housing, yet they usually fall into the category of single-family housing.

Apartments weathered the 2020 recession better than most other property sectors. CBRE forecasts that vacancy levels for multifamily apartments will return to pre-COVID levels at 6 percent in 2021 with a full market recovery occurring in early 2022. Demand levels are still below the peak in 2018-19 but should rise significantly from 2020 levels.


Most 2021 deliveries of multifamily housing are already in the pipeline. It is estimated that 2021 deliveries will reach 280,000 units compared to 2020’s deliveries of 300,000.


Performance in the retail industry has been a mixed bag over the past several years. There was a significant rise in e-commerce with Amazon leading the way while brick-and-mortar retail establishments saw a significant decline in activity. In 2010, e-commerce captured only 4.2 percent of retail sales but by the end 2020 it had increased to 31.8 percent of retail sales, averaging over $200 billion is sales per quarter. Expect this trend to continue in 2021.

Big box retailers like Walmart, Costco, Home Depot and Target faired well during the pandemic while many retailers saw their fortunes worsen. Some analysts predict that as many as 25,000 stores will permanently shut down in 2020, which is a marked increase over the 9,500 stores that closed nationwide in 2019.

At the end of 2020 and in early 2021, you will see announcements from established brands announce closings and, in some cases, bankruptcy filings. These brands, some of which have already made announcements, include: GNC, Jos. A. Bank, Men’s Warehouse, New York & Co., GameStop, Stein Mart, Victoria’s Secret, Chico’s, Tuesday Morning, Gap, JC Penney and Bed Bath & Beyond.


2020 was a very difficult year for long-standing local mainstay bars and restaurants as they were forced to shut down indoor dining and limit outdoor dining. Some have predicted that over 80 percent of mainstay restaurants will be closed by 2021. The one bright spot in the restaurant industry have been establishments with drive through accommodations. Some restaurants, in an effort to survive, have embraced the Take Out concept of curbside service or the use of delivery companies like Grubhub, Uber Eats, and DoorDash.

Some changes in the restaurant business are here to stay, like ordering from an online menu and curbside and takeout delivery, and having your food delivered to you at home.


The office industry took a real beating in 2020. Each year for the past several years, office design has been trending toward smaller offices with more employees crammed into tighter spaces. That trend ended with COVID which required more social distancing for those who physically came into the office. Today, a large percentage of people work from home even though some businesses have suffered from a reduction in efficiency and collaboration.

Offices in central business districts have suffered. Offices are expected to trail the broader economic recovery in 2021. As business activity increases in 2021, offices should see a rebound in occupancy and value. Although it didn’t show in December 2020, with a decline in employment, job growth should continue to improve in 2021 which will enable many businesses to get back to work. Don’t expect a robust recovery in the office sector in 2021. That will take a few more years to get back to normal.


Industrial development was one of the shining stars in 2020, particularly in manufacturing and distribution. According to Deloitte Insights, “there is a dichotomy in operating fundamentals among property types—industrial real estate, health care, data centers, and cell towers have been positively disrupted, while offices, hotels and retail have felt the negative effects. Global CRE (Commercial Real Estate) deal volume declined 36% year over year (YoY) to US $306 billion in the second quarter of 2020 due to economic stagnation and an uncertain pricing environment. Prices are showing early signs of stress across the more negatively impacted property types. For instance, US retail and office indices declined 4.1% and 0.5% YoY in August. In contract, industrial property index rose 7.4% YoY.”

Expect Industrial to have another good year in 2021, especially in the manufacturing sector where companies will be encouraged to bring back manufacturing facilities and jobs to the U.S. from China.


The hospitality and travel industries were two of the most heavily impacted segments of the economy. The hospitality industry is heavily dependent on people’s ability to travel. The hospitality industry will likely continue to remain flat for the foreseeable future. According to Robert Rauch’s Preliminary 2021 Lodging Industry Forecast, January to March will remain largely the same. Corporate business will continue to improve slowly. By April, corporate, leisure and group travel will improve with or without a vaccine for COVID. Q2 is the beginning of a massive recovery that will put occupancy levels over 50% nationally by the end of the year.

Average rates will begin to climb in the summer of 2021 with rates within 15-to-20 percent of 2019 rates. “The recession will end but it will take until 2022 before we are 90% recovered and 2023 until we are back to 2019 numbers. For some hotels with heavy reliance on groups, recovery could be closer to 2025. By then, costs will have increased and hotel values will just begin to return to normal.”


Real estate has long been a favored asset class for wealthy investors. Although year-to-date transaction volume for 2020 for U.S. assets was down 38 percent overall compared to volume measured during the same period in 2019, quarterly volume measured in 2020 still outpaces the average quarterly volume of the Great Recession (2007 – 2009) by 69 percent. This illustrates that real estate investors with access to capital are still active.

According to Real Capital Analytics, all sectors have been impacted during the pandemic but none more severely than hotels and retail, which saw year-over-year transaction volume fall by 70 percent and 48 percent, respectively. In the battered retail sector, malls have been hit particularly hard with some major mall owners forced to take out bankruptcy. Enclosed malls, in particular, face strong headwinds against open-air centers.

Office investment performance remains mixed by individual asset class and region. Markets with significant exposure to the travel and energy industries will be most challenged. Total investment volume was down 44 percent year-over-year in 2020. Industrial investment activity exceeded all other asset classes, but year-over-year volume was still down.

Despite the lower volume in investment capital in 2020, expect investment capital volume to improve significantly is 2021 as investors seek opportunities to purchase underperforming assets. Also expect capitalization rates (cap rates) to remain largely unmoved despite the operational challenges and drop in overall investment volume in 2020. Hotel, retail and office have all seen upticks in cap rates while industrial and multifamily have continued their downward trend. See the illustration below:


In summary, despite the many challenges in 2020 during the pandemic, 2021 should see significant improvement in all sectors of the real estate industry. Housing will continue to remain strong. Multifamily and industrial will continue to be top performs while hotel, office and retail will improve but lag behind past performance. These lagging sectors, however, may provide opportunities for savvy investors who want to take advantage of higher cap rates, strong capital markets and lower interest rates, assuming investment regulations remain the same.

Ken Holman

Ken Holman

Ken has been in the real estate business for over 40 years and has personally overseen the development and management of over $350 million worth of assets. Ken holds a B.S. degree in Accounting from Brigham Young University, a MBA from the University of Utah. Licensed real estate broker since 1976. He holds the following designations: CCIM, CPM, CRS,CCA. Served as the president of the Utah Apartment Association.
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