With vaccinations more widely available and restrictions loosening, Virginia’s economy is opening back up and consumers and businesses alike are eager for a return to normality. The commercial real estate market in Virginia was fairly resilient during the COVID-19 pandemic and economic downturn. However, the past year has been challenging and many businesses have had to innovate to stay afloat. As the economy recovers, it remains unclear what types of long-term impacts COVID-19 will have on commercial real estate in the commonwealth.
Virginia REALTORS® second quarter 2021 Commercial Market Report tracks trends in office, retail, and industrial real estate across nine markets in Virginia. The following are some key takeaways from this quarter’s report:
- The office market has weathered the pandemic, even as employees worked from home, some tenants gave up office space altogether, and others downsized their space. While vacancy rates rose in the second quarter of 2021, office rents also increased, suggesting that tenants who are looking for office space are seeking high-quality, high-amenity spaces.
- The pace and structure by which employees return to the office will have a big impact on both the overall demand for office space, as well as the types of space and amenities that will be desired by future tenants.
- The opening up of the economy and a surge in consumer spending supported a relatively strong retail sector in the second quarter of 2021. Pent-up consumer demand will be a key driver of the performance of the retail sector in the months to come.
- The biggest issue for retailers and restaurant owners, and consequently a risk for retail property owners, is staffing. A growing number of retail, restaurant, and hospitality job openings has led employers to raise wages, but businesses still face a shortage of workers, and many are not able to operate at full capacity, even when customers are returning.
- The strength of e-commerce sales continues to be a key driver of Virginia’s industrial and warehousing market. While demand for large warehouse space is strong, there is also robust and growing demand for smaller flex space. This type of commercial space is particularly challenging to find in most Virginia markets, and landlords are finding they can command premium rents.
- COVID-19 and the economic downturn have led to a “Cinderella moment” for the industrial sector. Once the overlooked slice of the commercial real estate market, the industrial market is now having its moment. The market will continue to evolve, with more shifts in industrial space uses as the economy continues to open up.
Check out our Q2 2021 Commercial Market Report for more trends in Virginia’s commercial real estate market, including detailed market statistics for nine metropolitan areas across the state.
Click here to send any comments or questions about this piece to Virginia REALTORS® Chief Economist Lisa Sturtevant, PhD.