2021 Predictions – Louisville Real Estate

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2021 Predictions – Louisville Real Estate

It’s that time of the year where all “experts” in real estate are making next year’s predictions on what trends we will see. After 17 years in this business, I consider myself as “expert” as anyone else.

Prediction 1

We will see massive single-family, patio home and apartment construction for at least the next two years. In Louisville, a healthy and stable residential market will have 4 to 6 months of inventory of homes on the market at any given time. That means that marketing times are 90 to 180 days, and most houses will sell at about 95% of list price after some negotiations and maybe a few offers. However, we have been in a massive inventory shortfall for the last 2 years with less than 2 months of inventory. This means we have about 1/3 of the homes on the market that we should, so just about every house sells the weekend it is listed with multiple offers that push the contract price over list price. Because of this, developers are scrambling to buy land and get it developed to make up the difference.

Prediction 2

I predict that commercial vacancy will increase to 15% to 25% in the next 12 to 18 months. This includes shopping malls, regional shopping centers, local shopping centers, casual dining restaurants and fast-casual restaurants. Right now, we aren’t seeing the true vacancy fallout from COVID because the property owners are giving rent concessions or total rent forgiveness to struggling tenants just to keep their centers occupied. However, that can’t go on forever and maintenance levels will begin to fall and foreclosures will increase. There will be a massive restaurant closure cycle in 2021 as all causal dining and fast-casual dining will have to retool their locations in order to either serve carryout via drive-through or have outdoor dining. The problem is that most of those sites are not set up for that and sometimes zoning won’t allow it. Shopping malls are in decline anyway and COVID will likely finish them off. Strip centers have been transitioning to all service-based businesses due to the Amazon effect and will have to continue that trend in order to survive.

Prediction 3

Over the next 3 to 4 years, retail centers will have to reconfigure their properties. First, individual tenants are going to reduce their waiting room sizes because all of us are going to go to waiting in our cars. Then, more tenants will have to have sidewalks from their doors to the parking lots to provide safe passage for their employees to go back and forth to the parking lot. Think of a veterinarian that comes to your car to get your dog, then brings the dog back out and collects payment. Right now, they are walking across traffic lanes, which isn’t safe. This will have to change and more covered drop-off areas and sidewalks will have to be installed.

Prediction 4

Offices will be completely redesigned. Obviously, most office workers found a way to work from home this summer. Employers are realizing that tele-commuters were efficient and with redesign, operations could continue the same or better than when everyone came to a centralized office. So, I predict that the ratio of square footage to office workers is going to shrink dramatically and that office tenants are going to start downsizing when their leases become due. I predict a 50% shrinkage is office space per company over the next 10 years. That means that every law firm in downtown Louisville is going to move to half of their current office space, which means big savings to the company since rent is a huge expense. This will force office building owners to get more creative and perhaps start moving individual floors to residential units or short-term rentals.

Our company appraises residential and commercial properties in Lousiville and southern Indiana. Please contact us if you have an appraisal need.