This is the second part of a two part series on 2021. The two most likely questions on the minds of real estate professionals and real estate investors are:

  1. What is going to happen to the US economy in 2021?
  2. And as a result of the health of the US economy, what’s going to happen to the real estate market in 2021?

Good questions, aren’t they? Today I attempt to answer the second question.  If you want to know my prediction for the US economy in 2021 click here.

Single Family Homes

You can’t have a comprehensive discussion about real estate without including the single-family housing market. The average interest rate on a 30-year fixed rate mortgage fell to a record low of 2.88% recently. These historic low interest rates have driven the demand for new home sales this summer to the fastest rate since before the Great Recession. If your job is related to the housing industry all is well. The current pace of sales is actually causing a housing shortage in some parts of the country.

But not is all well with the housing market. With the economy still in the lurch, some homeowners are having difficulty paying their mortgages. By the end of 2020 it is predicted that several million borrowers who received mortgage forbearance will have gone nine months without making a mortgage payment. In July, the delinquency rate on FHA-insured homes nationwide was 17 percent.

Something has to give, as these two statistics are polar opposites of one another. My guess (and that is what it is, a guess) is that the housing market will turn downward once the artificially supported economy begins to falter. Some are even predicting that the single-family housing market and mortgage bubbles are about to burst.

Commercial Real Estate Sales

According to data from JLL, commercial real estate investments fell 29 percent globally in the first six months of 2020 compared to the previous year. That makes sense to me. Why would you buy a rental property if you don’t have an accurate understanding of a property’s rent collections? I believe this trend will slowly improve in 2021 as rent collections without government intervention become known. Depending on what the “new normal” is for rent collections, it would not surprise me if we see a softening of property values in most property types.

Multifamily Housing

The apartment market is affected differently by COVID-19 than the single-family housing market. As mentioned in my previous post on the economy, the virus has impacted lower income wage earners more so than those in higher paying professions. It’s the retail workers, the restaurant and hospitality employees that have been affected most by COVID-19. This means that C quality apartments that generally house the blue collar workforce are much more affected than A & B quality apartments.

But at the moment, with rent forbearance continuing through the end of this year, the full impact of COVID-19 is not being fully experienced. Once rent forbearance is lifted, then and only then, will we actually know how badly the multifamily market will be impacted. Does anyone really believe that those tenants that are several months behind on their rent will have the ability to pay back what is owed to their landlords even with generous repayment terms? I don’t. Most blue collar renters in the good times live paycheck to paycheck.

With that in mind, I believe that C quality apartments in the first quarter of 2021 will experience significant problems with rent collections with the better quality apartments likely having less issues with nonpayment of rent. If there is one more round of rent forbearance early in 2021 then the impact of COVID-19 will be delayed into the second or third quarter of next year.

But even so the need for shelter remains inelastic: we all need a place to live. In a typical recession, when people lose their jobs, they move back in with family or friends, or renters in one-bedroom units pair up with a friend and move into a two-bedroom unit as a way to save money. I suspect this is what will happen once the government subsidies run their course.

Hospitality Industry

The hospitality industry has been the most severely impacted by COVID-19. Hotel properties are largely dependent on conferences, special events and tourism, all of which have been dramatically curtailed. In August, occupancy was down 32 percent over the previous year and the average daily rate was down 23 percent. This represents the worst occupancy level on record for the month of August. Not surprisingly, delinquent hotel loans have spiked to $21 billion with an overall delinquency rate in June of 24 percent of CMBS loans compared to less than 2 percent in January of this year.

Not all is bleak, however. A promising trend is emerging. There has been a surge in “work from hotel” bookings, from 12 percent pre-pandemic, to over 30 percent this summer. So COVID-19 appears to have kick-started a new emerging trend.


The second biggest loser resulting from the pandemic is retail. In March, physical stores closed as lockdowns forced shoppers to stay away. As a result, e-commerce has boomed as consumers have more goods than ever before delivered directly to their homes. What happens when a vaccine for the virus becomes available? Will consumers return to purchasing their goods at brick and mortar stores? Maybe but certainly not at the same volume as pre-COVID-19. E-commerce is here to stay. It is too convenient to go back to the way things were.

Even before the pandemic, retail was in serious trouble. In January of this year 4 percent of retail CMBS loans were delinquent. That number has soared to 18 percent this summer. This has much to do with bankruptcy filings of major retailers – JC Penney, Brooks Brothers, Neiman Marcus, Jos. A Bank, Lord & Taylor to name just a few. These retailers were already limping along before COVID-19 hit and the virus just helped push them over the edge.


In theory, the virus had little impact on office properties. Some tenants have asked for rent concessions and forbearance but in reality the office market was only marginally impacted by COVID-19. But the problem is many of us learned to work from home. I don’t know about you, but I like the convenience of working from home. I like the lack of a commute. I like having casual Friday every day of the week. I think I actually get more done from home than I do at the office because I have less interruptions. And I believe I’m not alone in my thinking.

The verdict is still out but I believe many companies have come to the same realization. I would not be surprised that these companies will decide to lease less space the next time their lease comes due. The virus has accidentally kick-started a trend of working from home that had been slowly developing over the past several years. Working from home is now the norm. It is no longer a novel idea.


I could write about other commercial property types, but I’m running out of time so let me give you my final thoughts. How badly commercial real estate (which includes apartments) is impacted by this pandemic is dependent upon how long the COVID-19 social distancing restrictions are left in place. The longer they stay in place the worse it will be for commercial real estate. I know that’s stating the obvious but sometimes you have to start with the obvious.

If you are looking for real estate bargains in the next year, you should seriously consider hospitality and retail, but only if you are experienced in these two sectors, which I am not. If the social distancing restrictions continue for another six months I believe there is serious potential for a bloodbath in the hospitality real estate market. Long term, I think both retail and office properties are at risk. The virus has kick-started trends that will likely reduce the long term demand for both property types. I think next year will be difficult for C quality apartments but the long term trend for apartments remains good. We all need a place to live.

Those are my thoughts. I welcome yours. How do you think commercial real estate will fare in 2021?

Doug Marshall is the award winning author of Mastering the Art of Commercial Real Estate Investing. Buy the book on Amazon!

Sources: Opinion: The COVID-19 lockdown is squeezing real estate from all sides and threatens to burst the housing and mortgage bubble, by Kieth Jurow, Market Watch, September 21, 2020; Global commercial real estate markets feel impact of COVID-19, JLL, August 11,2020; STR: US hotel performance of August 2020, by Hotel News Now Newswire, September 18, 2020; COVID-19 hit the hotel industry hard. Here’s how hotels are pivoting in the new reality, Tomi Kilgore, MarketWatch, August 31, 2020; Commercial Mortgage Delinquencies Near Record Levels, by Dorothy Neufeld, Visual Capitalist, July 16, 2020; Many companies realize they can get by and do business without the office, by Jonathan Miller,, July 1,2020;