As we leave 2020 and enter 2021, we are hopeful and expectant to see success in the commercial real estate industry. We are able to look at data from previous years and make educated guesses about how the different CRE markets will perform this new year. Here is our 2021 commercial real estate industry outlook.
Many people moved out of the office in 2020 and began working from home. A gradual re-entry into office space is expected in 2021, with 59% of workers back by Q1 and 98% back by Q3. As of now there seems to be plenty of office space available, which makes rent cheaper. There is competition to find flexible work spaces that provide good air quality, digital technology compatibility and flexible leases. Many people will be operating on hybrid work models, with some employees at home and some in the office. Overall, we are expecting the office market to increase and stabilize this year.
We saw a huge increase in e-commerce this past year due to the pandemic. While this form of shopping will continue to be very popular in 2021, we also believe that people will slowly begin shopping at physical stores again. Shoppers will return to retail stores as the covid vaccine distributes and cases reduce. People will want to reconnect and experience those in-person activities as they did before the pandemic. This is good news to retailers who took a hit from the pandemic.
We believe that warehouses, distribution centers, and industrial space will be valuable this year. As we saw this previous year, warehouse space has significantly increased as e-commerce and online shopping increased due to the pandemic. This should be the same for 2021 as well. We are anticipating a demand of 250 million square feet of industrial space and over $100 billion in the industry. With low vacancy rates, record high rental rates and sturdy development, we believe that the industrial market will flourish this year.
Multifamily properties held up well last year during the pandemic despite early reports that said otherwise. Housing is always in demand. With more affordable interest and rental rates we are expecting that multifamily properties will maintain a solid demand in 2021. Multifamily investment should continue to recover, seeing a 33% increase this year to $148 billion.
It seems that the hospitality industry has taken one of the biggest hits during the pandemic. The industry should recover about 50% in 2021, but full recovery will take 2-5 more years. It is evident that people want to travel to socially distant places that are far from heavily populated cities. They also want to travel to places that are within driving distance. Smaller towns and beaches have seen an adequate amount of tourism this year as people are looking to safely travel.
We have our own 2021 commercial real estate industry outlook for Southeastern, North Carolina. MWM partner Steve Warwick, stated that he anticipates “a very active and strong commercial market for Wilmington and Southeast North Carolina,” in 2021. He notes that “Wilmington ranks #1 for residential relocation destinations,” which will not only increase residential population, but also the need for commercial services. He believes that “the office, retail and industrial markets will continue to grow in our very desirable part of the country and state.” We are excited to see how the industry will perform in 2021, and are committed to doing our best to make it a successful year!