Development Picks up as COVID-19 Vaccinations Are Administered

By Margaret Jackson Saturday, February 20, 2021

With the end of the coronavirus pandemic in sight, many businesses are developing strategies for bringing their employees back to work, driving an increase in the construction of commercial real estate projects.

But even though construction is on the rise, the pandemic has changed the types of projects development companies are pursuing as well as how they approach design — especially in the office sector.

Multifamily, industrial, and logistics were the real estate categories that have seen the most development since the start of the pandemic, while activity slowed in the retail, hospitality, and speculative office development sectors, according to CBRE’s inaugural US Development Opportunity Index.

The analysis covered the top 50 US markets based on population. Scores were based on construction costs, the strength of existing supply, the market’s performance in previous cycles, and how the market is expected to perform in the future. Landing in the top 10 were Atlanta, Dallas, Phoenix, Orlando, Seattle, Denver, Raleigh, Houston, Austin, and Charlotte.

Denver, Colorado skyline.

Return to the Workplace

Companies that abandoned their offices as employees worked from home during the pandemic are thinking through what a return to the workplace will look like, said Dan Wagner, divisional research director at commercial real estate company CBRE and co-author of the report. Portfolio managers are evaluating how much space the business will need, whether some company employees will work from home, and how many will return to the office of the business full time.

“Most [companies] don’t have the answers to those questions yet, and they’re thinking through how best to use their space,” said Wagner, adding that most businesses will likely make those decisions during the second quarter.

A big company with offices scattered throughout the country likely will have more difficulty determining how to best use its assets than a small business with a single location, said Toby Jorgensen, associate research director at CBRE and co-author of the report.

Absorption Takes a Hit

The remote workforce created by the pandemic also has impacted the rate at which businesses are absorbing office space. Q4 2020 saw the second-lowest total of absorption, according to Stephen Newbold, national director of office research for professional services and investment management company Colliers International.

According to Colliers, absorption of office space totaled negative 40.9 million square feet nationally during Q4, with ten markets reporting negative absorption of more than 1 million square feet in Q4. At 14.7 million square feet, New York led the markets reporting negative absorption. Others included Los Angeles at 3.6 million square feet, the San Francisco Bay area at 2.5 million square feet, and Chicago at 2.3 million square feet.

Now that Americans are being vaccinated against COVID-19, Colliers National Director of Office Research Stephen Newbold said businesses should demonstrate greater confidence about employees returning to the office.

“The sector looks set to remain challenged through 2021, but we could see signs of stabilization as we move into 2022,” Newbold wrote.

About the Author

Headshot of Margaret Jackson

Margaret is an award-winning journalist who spent nearly 25 years in the newspaper industry. She has covered a variety of business topics, including residential and commercial real estate, technology, telecommunications, and cannabis.

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