Real estate professionals in the commercial industries know that markets can change dramatically in the course of just a few years. In 2021, this is perhaps more true than ever. Some commercial real estate niches floundered and others flourished over the past year, depending on how different industries were hit by the pandemic.
It’s critical to stay on top of the trends and review which up-and-coming markets are looking to boom in the year ahead. Deciding where to invest your time, energy and financial resources can be tricky, so here are some of the commercial real estate niches that are gaining popularity in 2021.
1. Life Sciences
With the pandemic, health issues became a top concern for many individuals. In 2020, $285 billion in global deals were made in the life sciences. Scientists turned their attention to studying COVID-19 and creating vaccines. Buildings used for science and research were in high demand. As new health concerns arise, the need for new construction will remain prevalent. Advanced technology has also made research more accessible.
Another reason life science buildings are smart investments is that they are recession-proof. Unlike other jobs, many workers in the science field can’t work from home. They need access to certain lab equipment. Researchers also tend to stay in the rental space longer. It may be more of a hassle or too costly to move locations — meaning commercial space is of high value in the life sciences niche.
COVID-19 helped increase the trend of online shopping. In 2020, Americans spent about $79.7 billion online. As retail stores shut down, many businesses had to move their products online. Warehouses become an easy option for storage.
The pandemic also made some retailers consider having a backup stockpile of items. Warehouses help provide a place for extra products. Some larger corporations are turning the back of their stores into warehouse centers. This way, they can ship products to their consumers faster.
With the rise in eCommerce, consider investing in warehouse property. Here are some things to consider when determining your location:
- The ease and access of loading and unloading
- The location relative to customers and business partners
- The space’s available vertical height
3. Self Storage
With more people working remotely, their homes may start to feel more cramped. They might consider moving some personal items into storage. This can help clear room for office space. Also, the remote work trend has caused more people to consider relocation. Personal storage units can hold their items while they are between homes.
Before you dive into this real estate niche, take the time to learn how valuation works in the self-storage market. Here are some factors to consider when it comes to self-storage opportunities in real estate:
- NOI (net operating income): You can find this value by subtracting your operating costs from your total income. This helps you determine how much profit you will bring in over time.
- Occupancy: There are two types of occupancy percentages: physical and economic. These can help you see your growth over time.
- Cap rates: To find this, you divide the NOI by the current market value. The figure helps you understand what the buyer will pay and what the seller will accept.
- Location and demographics: Your value will go up if you’re in a high-traffic area with good visibility. If you are in an area with a higher median household income, this can also increase the value.
4. Cold Storage
With the increase of online shopping, the food industry is changing. During the pandemic, many people shopped online for groceries. With the convenience of food delivered right to your door, this may become a continued trend. Cold storage units are perfect options to keep up with the growing demand.
Of course, there’s a reason cold storage is such a hot market — it’s a challenging one. Keep in mind that it may be costly to build and operate this type of real estate. Repurposing old grocery stores can limit costs, as they already have the necessary equipment installed.
When trying to find the right property, location is an important factor. Urban locations are a good option since they provide a stronger distribution center and a wider pool of consumers. Do your research and search for properties currently on the market.
Here are some additional tips for evaluating a cold storage unit:
- Examine your cash flow
- Find economic occupancy information
- Complete a market analysis
- Do competitive research
- Consider the different types of loans available
5. Coworking Spaces
Despite the well-publicized shakiness of coworking giant WeWork, there’s a reason coworking has been a major point of discourse over the past few years. Experts believe that this real estate niche will grow even as many employers stay remote — at the end of 2021’s third quarter, leased flexible office space is still seeing 2.5% growth over 2019 values.
Coworking spaces are essentially shared workspaces popular with remote workers and startup businesses. They provide a change of scenery from a home office or a low-cost option for organizations building up income. These spaces also offer a sense of community, as they frequently feature luxury amenities such as caffeinated beverages and snacks for the tenants.
Investing in a shared office space can give young businesses a professional look. It gives a location to conduct client meetings and more flexibility than leasing your own office building. Plus, it’s a more cost-effective option than investing in commercial real estate for an entire office staff.
Profitable Commercial Real Estate Niches in 2021
Investing in a property can be a good source of income. To find the best value, you might want to look into some niche markets. Consider these rising markets as you evaluate your career moves in commercial real estate.
About the Author: Evelyn Long is the editor-in-chief of Renovated, an online resource for the real estate market. Her freelance writing has been published by the National Association of REALTORS®, Insights for Professionals and other prominent industry magazines.