The COVID-19 pandemic wreaked havoc on businesses over the past year and a half, with many office spaces sitting empty as employees worked from home, projects being delayed, and some businesses shutting their doors altogether. Now that we’re moving more toward normalcy, however, it’s smart to take stock of where we are right now, and where we think the commercial real estate market will go in the second half of 2021.
Commercial real estate activity for UBT has remained relatively strong over the past year. The bank didn’t have significant exposure to large speculative office projects, so we weren’t affected by that product type. Multifamily (apartments, condos, etc.) construction has remained solid, with continued strong occupancy levels. Senior living facilities showed some slowing in their lease-up rate but in general remained at acceptable levels of occupancy. Fast food retail has stayed quite active, and restaurant concepts with drive-thru lanes seem to have done particularly well in the past year. Traditional indoor shopping malls were a type of commercial real estate that was already showing signs of weakness prior to 2020. This trend was accelerated further by the onset of the COVID -19 pandemic, and many “old-school” traditional shopping malls now have material vacancy figures. Second to malls, hotels were another category of real estate that experienced a fairly significant negative impact of the pandemic. It does appear, however, that hotels are finally starting to turn the corner toward improvement.
In Summer 2021, new construction demand for multifamily, fast food, and senior living remains strong as we emerge from the pandemic. The biggest headwind at the moment appears to be pricing and availability of materials due to significant supply chain disruptions. We have observed several large projects that were slated to break ground this summer that chose instead to delay their construction.
Some developers believe the current spike in materials pricing is a bubble that will work its way through the supply chain, so they are opting to delay projects in hopes that rebidding in the fall will result in materially lower costs. To exacerbate the issue, reduced availability of labor has made it tougher for builders to get access to all the subcontractors necessary to get jobs completed in a timely manner.
Our great team of experienced lenders works to assist borrowers with all sizes of commercial real estate projects and will always try to find a structure that works best for both the customer and the bank. As we come out of the pandemic and move forward, UBT continues to work with a number of commercial real estate customers representing all product types, helping our customers to be successful with their real estate investments.
Have a commercial real estate project to tackle? Contact us today to talk about how we can help.
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