commercial market insights - cdn.nar.realtor
TRANSCRIPT
National Association of REALTORS® Research Group
July 2021Commercial Market Insights
1
Contents
Economic Conditions
Overview
Multifamily
Office
Industrial
Retail
Hotel
Sustained job creation, more consumer spending, and the continuing return of the workforce to the office underpinned the commercial real estate’s recovery across all property sectors in the first half of 2021.
Acquisitions of investors of commercial real estate rose acquisitions rose 34% in the first half of 2021. Commercial prices continued to recover, with property valuation just 1% below the valuations prior to the pandemic at a broad level. With prices firming up, cap rates continued to compress across all property types, with the lowest cap rates for apartment and industrial property acquisitions.
The apartment and industrial properties remain the most favored assets among the core property types. Apartment absorption rose at the strongest pace in a decade, with the median rent for vacant apartments rising at 18%. In the industrial property sector, the vacancy rate fell to 4.5% with consumers sustaining their e-commerce spending. The retail property market also rebounded, with acquisitions directed towards shopping centers (multi-tenants) than shops (single-tenant), Hotel acquisitions, while accounting for a smaller portion of the investment deals, were 200% above the level one year ago. One use for vacant hotels/motels is for multifamily housing. The office market remains the weakest property sector, suffering sustained occupancy losses in the second half, with a total negative net absorption of 170 million square feet since the pandemic and a vacancy rate of nearly 18%.
Barring a major resurgence of coronavirus cases arising from the delta variant that could lead to another economic shutdown, NAR Research anticipates that sales and commercial leasing will continue to expand in 2021 and more strongly in 2022. However, given the large loss in office occupancy and the office construction in the pipeline, the office vacancy rate will likely continue to remain elevated at the current level throughout 2022.
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Economic ConditionsJobs, spending, mobility continue to trend up
16 million payroll generated from May 2020-June 2021 with 6.7 million jobs to recover
The economy continues to recover, creating new jobs. As of June 2021, the economy has created 16 million net new jobs, or 71% of the 22.4 million jobs lost during March and April 2020. There are 6.7 million nonfarm payroll jobs still to be recovered.
About one in three jobs to still be recovered are in leisure and hospitality, followed by the government sector, health care and social assistance, and professional and businesses services, which each have lost over 500,000 jobs. At the broadest industry level grouping, only the finance and insurance industry had job gains.
Sixty-four of 445 metro areas and their metropolitan divisions, or just 15%, have more jobs as of June 2021 compared to February 2020.
Source: BLS Establishment Survey
Source: BLS Establishment Survey
152523
130161
145759
115000120000125000130000135000140000145000150000155000
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In t
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16 Million Payroll Jobs Created With 6.7 Million Lost Jobs to
Recover as of June 2021
25
-8
-60
-94
-100
-178
-192
-238
-255
-297
-303
-481
-633
-773
-995
-2,181
Finance and Insurance
Utilities
Mining and Logging
Transportation & Warehousing
Real Estate, Rental & Leasing
Information Services
Wholesale Trade
Construction
Educational Services
Other Services
Retail Trade
Manufacturing
Professional & Business Services
Health Care & Social Assistance
Government
Leisure & Hospitality
Nonfarm Payroll Jobs Lost since February 2020 as of June 2021
3
US Census Bureau
14% of the workforce still working from home
Workers are returning to the office. As of June 2021, just 14% of workers teleworked, down from a peak of 35%, but still about thrice the 5.7% share in 2019. Among computer and mathematical workers, 50% are teleworking, about four-fold from the 12% share in 2019. The fraction of workers who telework continues to trend downwards, but a higher fraction of workers will likely work from home compared to the pre-pandemic especially among occupations (e.g. tech workers) who can perform tasks at home.
Consumer spending in food and drinking places is picking up while e-commerce continues to accelerate
Consumer spending in food and drinking places is rising, as more people are vaccination and as states allow businesses to operate at a higher capacity. Retail sales in food and drinking places has steadily increased since February 2021, with sales just 9% below the level in February 2021. Consumers are spending their income, with the savings rate continuing to normalize, to 12.4%, as of June 2021..
Electronic and mail order sales continues to trend upwards in terms of dollar volume, to $902 billion dollars, or 15% of retail trade sales. Prior to the pandemic, electronic sales accounted for just 12.4% of retail trade sales.
Source: BLS COVID-19 Supplemental Survey
5.714.4
12.2
50.3
2019
20-M
ay
20-J
un
20-J
ul
Au
g-2
0
Sep
-20
Oct
-20
Nov
-20
Dec
-20
Jan
-21
Feb
-21
Mar
-21
Ap
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May
-21
1-Ju
n
Percent of Employed Who Teleworked
Workers 16 years old and over
Computer and mathematical
Source: US Census Bureau American Community
12.40.0
10.0
20.0
30.0
40.0
$0.0$5.0
$10.0$15.0
$20.0$25.0$30.0
Jan
/20
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Personal Income (SA, in Trillion Dollars) and Personal Savings Rate
Personal income Savings rate
0.0%
5.0%
10.0%
15.0%
20.0%
$0
$200
$400
$600
$800
$1,000
Jan
/20
00
May
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01
Sep
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02
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04
May
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05
Sep
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12-Month Running Total of Electronic and Mail Order Retail Sales (in million
dollars)
Electronic shopping sales, in million dollars
as a percent of retail sales
$781,722
$602,816
$706,022
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
Jan
/20
19M
ar/2
019
May
/20
19Ju
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ar/2
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May
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21
Retail Sales in Food and Drinking Places, 12-month moving total, in
million dollars
Source: :US Census Bureau
Source: :US Bureau of Economic Analysis
Economic ConditionsJobs, spending, mobility continue to trend up
3
Source: US Census Bureau Small Business Pulse Survey
Inflation surged to 5.4% in June due to uptick in energy and transportation prices
With consumer spending normalizing, the inflation rate (all items) surged to 5.4% in June 2021 due to rising energy and transportation prices. Over a 2-year rolling window, the average inflation rate less the food and energy services averaged 2.1% as of June 2021. In its June 16 meeting, the Federal Open Market Committee kept the federal funds rate at 0 to 25% and the current policy to increase its holdings of Treasury securities by at least $80 billion per month and of agency (Fannie Mae, Freddie Mac, Ginnie Mae) mortgage-backed securities by at least $40 billion per month to steer the economy back to maximum employment
57% of small businesses operating at higher capacity as of July 17, 2021
As the economy continues to recover, a businesses are starting to operate at higher capacity. As of the week of July 17, 57% of small businesses were operating at higher capacity compared to one year ago as COVID-19 cases started to accelerate.
Mobility to places continues to normalize
Mobility continues to normalize based on the number of visits to locations tracked by Google® (where locations settings are turned on) and volume of directions tracked by Apple®. The visit to workplaces, retail stores/recreation is still below the pre-pandemic level (Jan 2020), with visit to workplaces down by 33%. The use of public transportations is about half of the pre-pandemic level.
5.4
2.1
0.0
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6.0
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Inflation
Inflation-all itemsInflation exc. food and energy, 24-month rolling
38.9
57.0
30.035.040.045.050.055.060.0
15/A
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12/J
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26/J
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10/J
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Percent of Small Businesses Operating at Higher Capacity
Compared to One Year Ago as of July 17
117.46
55.1
020406080
100120140160180
1/13
/20
20
2/13
/20
203/
13/2
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Apple® Mobility Trends(January 13, 2020=100)
driving transit
US Bureau of Labor Statistics
4
42
-11-33
-100
-50
0
50
100
150
1/1/
2021
1/15
/202
1
1/29
/202
1
2/12
/202
1
2/26
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3/12
/202
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/202
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/202
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2021
5/21
/202
1
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2021
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/202
1
7/2/
2021
7/16
/202
1
Google® Mobility Trends
retail_and_recreation_percent_change_from_baseline
grocery_and_pharmacy_percent_change_from_baseline
Economic ConditionsJobs, spending, mobility continue to trend up
2
Commercial Market OverviewCRE acquisitions up 34% in first half of 2021
Commercial sales transactions during 2021 H1 Up 34% from one year ago
Commercial real estate (CRE) acquisitions rose 34% during the first half of 2021 compared to the level one year ago, with investment acquisitions up in all property classes.
The apartment CRE market this year’s strongest asset class in terms of size and its strong growth. The dollar volume of apartment transactions from January-June 2021 rose 64% , and it accounts for the largest deal volume, at $92.1 billion. Industrial was the asset with the second largest volume of acquisitions, at $51.9 billion, up 10%.
Acquisitions for office, retail, and seniors housing and care were also up from one year ago. However, office acquisitions rose at the slowest pace of 6%, compared to other property assets, as investors continue to assess how the work from home policy will impact the demand for office space.
The largest increase was of hotels, where acquisitions were up 253% from one year ago. Investors have been acquiring some hotels for conversion into multifamily housing as documented in NAR’s Case Studies on Repurposing Vacant Hotels/Motels into Multifamily Housing.
Commercial real estate prices, just down 1% since January 2020
Commercial real estate prices continue to firm up. As of June 2021, the Green Street Commercial Price Index, an appraisal-based index of high-quality properties held by REITs, is about 1% below the pre-pandemic level in January 2020. The index fell by as much as 10% year-over-year in the second quarter of 2020. The Core Properties Index, comprised of multifamily, office, industrial, retail properties, is also down by less than 1% from January 2020.
Source: Real Capital Analytics
Real Capital Analytics
$52.51
$106.75
$144.71
$- $20 $40 $60 $80
$100 $120 $140 $160 $180 $200
01Q
10
2Q2
03Q
30
4Q
40
6Q1
07Q
20
8Q3
09Q
411
Q1
12Q
213
Q3
14Q
416
Q1
17Q
218
Q3
19Q
421
Q1
Quarterly Commercial Sales Transactions of $2.5M or Over
Vol ($b) YOYOffice 47.5 6%Retail 22.8 22%Industrial 51.9 10%Hotel 20.4 253%Apartment 92.1 64%Seniors Housing & Care 6.8 36%Dev Site 9.9 -4%Total 251.5 34%
H1 '21
-1.3%-0.7%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
Feb
/20
20M
ar/2
020
Ap
r/20
20M
ay/2
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Jun
/20
20Ju
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ug
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ar/2
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Ap
r/20
21M
ay/2
021
Jun
/20
21Percent Change in Commercial
Property Prices vs. Jan 2020
GreenStreet All Property Index
GreenStreet Core Property Index
3
Source: NAR calculation based on Nareit data
Cap rates continue to compress
As prices continue to firm up, cap rates continue to compress. Acquisitions for apartment properties had the lowest risk spread (cap rate less 10-year T-note) at 3.3% (4.5% one year ago), followed by industrial acquisitions, at 4.1% (5.3% one year ago). Hotel acquisitions had the highest risk spread at 6.7% (7.9% one year ago). For office acquisitions, the risk-adjusted cap rate was 4.9% (5.9% one year ago). The risk-adjusted cap rates for retail properties has also declined to 5.0% (6.0% one year ago). As of June, the 10-year T-bond (risk-free rate) was 1.6%.
Industrial and self-storage REITs have highest returns
The total return on REITs invested in various types of assets has turned from negative in 2020 to as of June 2021 compared to January 2020, except for office REITs which continue to show a total return of –6.7%. The highest total returns (price and dividend) as of June 2021 relative to January 2020 were in self-storage (47.4%), industrial (28.8%), and infrastructure (26.6%).
CMBS delinquency rates continue to decline
As the economy continues to recover, delinquency rates continue to fall to 6.2% in May 2021. The highest loan delinquencies are In lodging, at 14.3%, and the lowest was industrial, at less than 1%.
Source: NAR calculation based on Real Capital Analytics data
3.3%4.1%
5.0%4.9%
6.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
01Q
10
2Q3
04
Q1
05Q
30
7Q1
08Q
310
Q1
11Q
313
Q1
14Q
316
Q1
17Q
319
Q1
20Q
3
Risk Spreads for Properties $2.5 Million or Over (Cap Rates Less 10-Year T-
Bond)
ApartmentIndustrialRetailOfficeHotel
-6.7%
28.8%
6.9%2.8
47.4%
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
Feb
-20
Ap
r-20
Jun
-20
Au
g-2
0
Oct
-20
Dec
-20
Feb
-21
Ap
r-21
Jun
-21
Total Return (%) of Equity REITS as of June 2021 Compared to January 2020
office industrialretail aptlodging healthcareself-storage Infrastructure
6.1514.27
0.652.09
10.71
05
1015
202530
Jan
-19
Ap
r-19
Jul-
19
Oct
-19
Jan
-20
Ap
r-20
Jul-
20
Oct
-20
Jan
-21
Ap
r-21
CMBS Marked as 30 Days + Delinquent as of June 2021
All Industrial
Lodging Multifamily
Office Retail
Commercial Market OverviewInvestment acquisitions up 34% in first half of 2021
5
The apartment CRE market is experiencing a boom. Net absorption of apartment units reached its strongest level in a decade, with a net absorption of about 207,000 units.
With strong demand, the median monthly rent for vacant units during 2021 Q1 rose 18% from one year ago, as the median monthly rent rose to $1,226 in 2021 Q1, according to the US Census Bureau.
Among 138 apartment markets, only San Francisco had negative net absorption of apartment units (-2,730 units) while all other metro saw a net gain in renter households during 2020 Q1- 2021 Q2.
Thirty-nine out 138 markets or 28% double digit increase in the effective rent as of July 12, 2021 compared to one year ago. Even the markets that saw a decline in rent during 2020 how have higher rents that on year ago, such as New York City (+3%), Washington DC (6%), San Francisco (+5.4%), San Jose (3.1%), and Seattle (+7.2%).
2%
18%
-5%
0%
5%
10%
15%
20%
Q1/
2017
Q3/
2017
Q1/
2018
Q3/
2018
Q1/
2019
Q3/
2019
Q1/
2020
Q3/
2020
Y/Y Percent Change in the Vacant for Rent Median Monthly Rent
MultifamilyStrongest absorption in a decade with soaring rent growth
Source: NAR analysis of CoStar data
Source: US Census Bureau
5
The apartment CRE market accounted for the largest volume of CRE investment deals, at $91 billion as of the first half of 2021. with deals up 64% from one year ago.
Acquisitions of garden or low-rises (less than four flours) rose at a stronger pace of 68% in the first half , compared to acquisitions for mid-rises which rose 56%. Garden or low-rises are usually in the suburbs, so this indicates a stronger demand for multifamily housing in the suburbs than in the central business districts. Garden or low-rises account for 79% of the total number of property acquisitions as of June 2021.
The market share of the six major markets (New York City, Chicago, Boston, Washington DC, Los Angeles, San Francisco) in terms of property acquisitions has been declining since the pandemic, with the share at 12.5% from accounted 15.2% in 2021 Q1.
Los Angeles, Dallas, Phoenix, Atlanta, and Houston were the markets with the most investment acquisition deals in the first half of 2021.
MultifamilyMultifamily acquisitions up 6% in the 2021 H1
Source of data: Real Capital Analytics
$28
$11
$53
$0.0$10.0$20.0$30.0$40.0$50.0$60.0$70.0
01Q
10
2Q3
04
Q1
05Q
30
7Q1
08Q
310
Q1
11Q
313
Q1
14Q
316
Q1
17Q
319
Q1
20Q
3
Bill
ion
s
Sales Transactions of $2.5M or Over
Low-rise (< 4 fl) Mid/Highrise All
78.9%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
02Q
30
3Q4
05Q
10
6Q2
07Q
30
8Q4
10Q
111
Q2
12Q
313
Q4
15Q
116
Q2
17Q
318
Q4
20Q
121
Q2
Share of Acquisitions of Garden-type Multifamily Properties to Total
Acquisitions
12.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
02Q
30
3Q3
04
Q3
05Q
30
6Q3
07Q
30
8Q3
09Q
310
Q3
11Q
312
Q3
13Q
314
Q3
15Q
316
Q3
17Q
318
Q3
19Q
320
Q3
Share of Six Major Markets to Total Acquisitions/Investments of Multifamily
Properties
274202
165148
118100
9188
807974727168676361575554
Los AngelesDallas
PhoenixAtlanta
HoustonChicago
San DiegoDenver
No NJMinneapolis
AustinManhattan
BostonMiami/Dade CoNYC Boroughs
SeattlePortland
Tertiary NortheastSan Antonio
East Bay
Most Active Multifamily Markets by Number of Property Acquisitions Year-
to-date through June 2021
7
Office occupancy continued to decline in 2021 Q2, with negative net absorption of 39 million square feet (MSF). Since 202 Q2, 170 MSF has become unoccupied. Investors remain wary of investing in the office market, as businesses are still assessing their work from home policies. To date, there are also still 500,000 fewer professional and business workers compared to the pre-pandemic level and half of computer/tech workers are still working from home,
New leasing is still happening, with 50 MSF of new leased space in 2021 Q2 , but leasing is down from about 80 MSF prior to the pandemic.
With a decline in occupancy, the office vacancy rate has increased to 17.2%, from 13% in 2020 Q1. Vacancy is likely to still keep rising with 107 MSF of construction underway.
However, asking rents are holding firmly and even rising, effective rents could be lower with tenants receiving more tenant concessions to attract them to move.
O
17.2%
0%
5%
10%
15%
20%
(60)
(40)
(20)
-
20
40
2012
Q1
2012
Q4
2013
Q3
2014
Q2
2015
Q1
2015
Q4
2016
Q3
2017
Q2
2018
Q1
2018
Q4
2019
Q3
2020
Q2
2021
Q1
Mill
ion
s
Net Absorption of Office Space (MSF) and Vacancy Rate as of 2021 Q2
Absorption Vacancy Rate
Source: Cushman and Wakefield
$35.5
$0.00$5.00
$10.00$15.00
$20.00$25.00$30.00$35.00$40.00
1995
Q1
1997
Q1
1999
Q1
200
1 Q1
200
3 Q
120
05
Q1
200
7 Q
120
09
Q1
2011
Q1
2013
Q1
2015
Q1
2017
Q1
2019
Q1
2021
Q1
Office Asking Rent
Source: Cushman and Wakefield
Source: Cushman and Wakefield
50
- 20 40 60 80
100
200
2 Q
120
03
Q3
200
5 Q
120
06
Q3
200
8 Q
120
09
Q3
2011
Q1
2012
Q3
2014
Q1
2015
Q3
2017
Q1
2018
Q3
2020
Q1
Mill
ion
s
New Leasing Activity
1,603,166549,875
473,489254,659
145,958105,958102,86597,131
62,88235,18328,09927,85125,22815,8534,0613,5001,207
San Mateo CountyAtlanta
San DiegoEl Paso
Fort Myers/NaplesOmaha
RochesterCharleston
RenoMemphis
IndianapolisPalm Beach
CharlotteProvidence
SavannahBinghamton
Fredericksburg
Markets that Had Positive Net Absorption in 2021 Q1
-1,073,857-1,137,609-1,208,164-1,253,052-1,266,252
-1,493,174-1,692,438-1,824,661-1,878,186-2,006,244
-2,520,971-2,817,881
-3,287,407-3,477,877
-4,018,402-4,840,290-5,030,093
Oakland/East BaySan JoseDenverPhoenixHoustonBostonNew Jersey - NorthernNew York - DowntownLos Angeles Non-CBDSan FranciscoSouth - West South CentralNortheast - New EnglandChicagoSouth - South AtlanticWest - MountainMidwest - East North CentralNew York - Midtown
Markets with Negative Net Absorption of at least 1 Million Square Feet
OfficeNegative net absorption, but some uptick in investments
7
Year-to-date through June, acquisitions of office property or portfolios were up 6% year-over-year, a modest growth compared to other asset classes (apartment, 64%; industrial, 10%; retail, 24%).
riven by the growth in acquisitions in the suburban markets that rose 12% year-over-year. However, acquisitions in the central business district (CBD) markets were down 5%.
The suburban property markets accounted for 90% of acquisitions in terms of number of property acquisitions.
The six major markets (New York City, Chicago, Boston, Washington DC, Los Angeles, San Francisco) accounted for 27% of the acquisitions. In 2020 Q1, these markets accounted for 31% of investment deals.
The top markets with the largest number of property investment deals were Los Angeles, Dallas, Boston, Atlanta, Phoenix, and Seattle. Worth noting is that Manhattan is not in the top 20 list (with 32 investment deals).
Source of data: Real Capital Analytics
$7.2
$18.8$26.0
$- $10 $20 $30 $40 $50 $60 $70 $80 $90
01Q
10
2Q2
03Q
30
4Q
40
6Q1
07Q
20
8Q3
09Q
411
Q1
12Q
213
Q3
14Q
416
Q1
17Q
218
Q3
19Q
421
Q1
Bill
ion
s
Sales Transactions of $2.5M or Over
Office - CBD Office - Sub All
90%
60%65%70%75%80%85%90%95%
02Q
10
3Q2
04
Q3
05Q
40
7Q1
08Q
20
9Q3
10Q
412
Q1
13Q
214
Q3
15Q
417
Q1
18Q
219
Q3
20Q
4
Share of Suburban Office Property Transactions to Total Transactions
(Properties)
31%27%
0%5%
10%15%
20%25%30%35%40%45%50%
02Q
10
3Q2
04
Q3
05Q
40
7Q1
08Q
20
9Q3
10Q
412
Q1
13Q
214
Q3
15Q
417
Q1
18Q
219
Q3
20Q
4
Share of Office Property Transactions in the Six Major Markets to Total
Transactions (Properties)
11780
7373
6868
6654
4948
46444343
393737
343333
Los AngelesDallas
BostonAtlanta
PhoenixSeattle
San DiegoSan JoseHouston
No NJDenver
Salt Lake CityMiami/Dade Co
Orange CoBrowardChicago
Palm Beach CoTampa
PhiladelphiaAustin
Most Active Office Markets by Number of Property Acquisitions YTD through June
2021
OfficeNegative net absorption, but some uptick in investments
10
Industrial Record setting continues as industrial sector remains hot
Rental vacancy rate declined from the prior quarter
The U.S. rental vacancy rate decreased from 4.9% in 2021 Q1 to 4.5% in 2021 Q2. Q2 2021 vacancy rate was also a 60 bps decline on a year-over-year basis with the acceleration of e-commerce continuing to result in significant industrial space demand for which is outpacing supply.
The lowest vacancy rates in U.S. were in the following markets : Orange County (1.6%), Philadelphia (1.7%), Inland Empire (1.7%) and Los Angeles (1.7%).
Net absorption sets quarter record
U.S. net absorption set a quarter record in Q2 2021 with 110.2 million square feet. New leasing activity in Q1 2020 saw 212.5 MSF which is just short of the previous record set in Q1 2021 (214.4 MSF) as e-commerce sales continues to push demand forward for warehouse/distribution space.
New record set for industrial asking rents
U.S. industrial asking rents reached new heights in Q2 at $7.03 as firm demand and tight conditions remain are key drivers invigorating rent growth. Q2 rent growth increased 6.8% from the same period a year ago and 1.6% over Q1 2021. The west saw the highest asking rents with $10.39 for Q2 2021.
4.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2001
Q3
2002
Q4
2004
Q1
2005
Q2
2006
Q3
2007
Q4
2009
Q1
2010
Q2
2011
Q3
2012
Q4
2014
Q1
2015
Q2
2016
Q3
2017
Q4
2019
Q1
2020
Q2
Source: NAR analysis of C&W Data
QTR Industrial Vacancy Rate
110,216,578
-100,000,000
-50,000,000
0
50,000,000
100,000,000
150,000,000
2001
Q1
2002
Q3
2004
Q1
2005
Q3
2007
Q1
2008
Q3
2010
Q1
2011
Q3
2013
Q1
2014
Q3
2016
Q1
2017
Q3
2019
Q1
202
0 Q
3
QTR Industrial Net Absorption
212,527,165
0
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
2002
Q3
2003
Q4
2005
Q1
2006
Q2
2007
Q3
2008
Q4
2010
Q1
2011
Q2
2012
Q3
2013
Q4
2015
Q1
2016
Q2
2017
Q3
2018
Q4
2020
Q1
2021
Q2
QTR Industrial Leasing
$7.03
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
2001
Q1
2002
Q2
2003
Q3
2004
Q4
2006
Q1
2007
Q2
2008
Q3
2009
Q4
2011
Q1
2012
Q2
2013
Q3
2014
Q4
2016
Q1
2017
Q2
2018
Q3
2019
Q4
2021
Q1
QTR Industrial Rents
9
Industrial Acquisitions exceed previous levels in Q2 2021
Given the strong market fundamentals, Investor acquisitions of industrial properties or portfolio acquisitions of $2.5 million or over for Q2 2021, increased 139% year-over-year as transaction volume for both flex and warehouse properties totaled $29.8 billion. Sales for Q2 2020 totaled $12.4 billion. The industrial sector has moved beyond previous levels as transaction volume and prices increase. Industrial properties see continued investment activity as investors seek ownership of assets where e-commerce goods are stored.
As a result, investment in industrial properties continues to be lead by warehouse acquisitions as they account for majority of industrial transactions in Q2 2021. Warehouses’ share of total industrial volume increased towards 79%, up from 75% in Q2 2020 but a marginal decrease from Q1 2021.
The average price per square foot of industrial acquisitions in Q2 increased by $20 from Q1. The average price per square foot for flex properties rose to $166/sq.ft., up from $143/sq.ft. recorded in Q1. Warehouse average price per square foot increased $18 from the Q1 level towards $112 in Q2, for which increases in both flex and warehouses indicate price growth.
Year-to-date as of June 2021, the most active markets with respect to industrial property acquisitions were Los Angeles (288), Chicago (182), Atlanta (173) and Inland Empire (138).
$3.5 $3.3 $5.9 $4.8 $4.1
$2.2
$6.0
$13.6 $10.5 $11.7
$15.1 $16.5
$10.2
$23.7
Q2 2015 Q2 2016 Q2 2017 Q2 2018 Q2 2019 Q2 2020 Q2 2021
in B
illio
ns $
Q2 Industrial Sales Transaction Comparison (Billion $)
Flex Warehouse
$6
$24 $30
$-
$10
$20
$30
$40
$50
'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'19'20'21
Billi
ons $
Source: NAR analysis of RCA Data
QTR Industrial Sales Transactions of $2.5M or Over (in Billions $)
Flex Warehouse All Industrial
$166
$112$120
$- $20 $40 $60 $80
$100 $120 $140 $160 $180 $200
'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'19'20'21
QTR Average Sales Price Per Square Foot for Industrial Properties
Flex Warehouse All Industrial
288
182173138133130111103 99 95 88 71 69 68 68 61 61 61 59 56
Los A
ngel
esCh
icag
oAt
lant
aIn
land
Em
pire
Hous
ton
Dalla
sPh
oeni
xBo
ston
No
NJ
Ora
nge
CoSe
attle
San
Dieg
oEa
st B
ayM
inne
apol
isN
YC B
orou
ghs
Phila
delp
hia
Char
lott
eM
iam
i/Dad
e Co
Sacr
amen
toLa
s Veg
as
Most Active Industrial Markets by Number of Property Acquisitions YTD Through June
2021
11
Retail Rebounding, but investors remain cautious
Commercial sales/acquisitions of retail properties or portfolio acquisitions of $2.5 million or more recorded $13.7 billion in Q2 2021. This represents a year-over-year increase of 154%. While the reopening of both retail locations and the overall economy has progressed as consumers participate in traditional, pre-pandemic activities, the 154% yoy change in volume is more about the apprehensions surrounding retail one year ago.
This investor uncertainty remains today, albeit not as much as last year, when comparing the current transaction volume in Q2 2021, $13.7 billion, to Q2 pre-COVID averages.
While exhibiting sliding or flat property prices for 2020, the trend is improving. The average price per square foot for all of retail was $184/sq.ft. in Q2 2021 and marks two quarters in a row of appreciation where shops averaged $246/sq.ft. and centers averaged $154/sq.ft.
Sales of shopping centers accounted for 54% of all retail transactions in Q2 2021 which was up from the 47% recorded in Q1 2021 and up from 40% Q2 2020.
Year-to-date as of June 2021, the most active markets with respect to retail property acquisitions were Los Angeles (137), Chicago (104), Atlanta (103) and Dallas (99).
$6 $7
$14
$-
$5
$10
$15
$20
$25
$30
$35
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
'21
Billi
ons $
Source: NAR analysis of RCA Data
QTR Retail Sales Transactions of $2.5M or Over (in Billions $)
Shops Centers All Retail
54%
0%10%20%30%40%50%60%70%80%90%
100%
'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'19'20'21
Centers Share of Total Retail Transaction Volume
$246
$154 $184
$-
$100
$200
$300
$400
$500
'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'19'20'21
Average Sales Price Per Square Foot for Retail Properties
Shops Centers
137
104103 9987
72 7059 52 47 46 45 44 43 41 39 39 38 37 35
Los A
ngel
esCh
icag
oAt
lant
aDa
llas
Phoe
nix
Hous
ton
NYC
Bor
ough
sO
rang
e Co
Tam
paN
o N
JCh
arlo
tte
Orla
ndo
Man
hatt
anBo
ston
Min
neap
olis
San
Dieg
oSe
attle
Mia
mi/D
ade
CoIn
land
Em
pire
East
Bay
Most Active Retail Markets by Number of Property Acquisitions YTD Through June
2021
12
Retail Sales transactions volume rebounds in Q1 2021
The dollar sales volume of retail property acquisitions in the six major markets (6MM which are New York, Boston, Chicago, Washington DC, Los Angeles, and San Francisco) rebound in 2021 Q2 as transaction volume totaled $3.6 billion which is 99.6% above the same period a year ago and up on a quarter year-over-year basis of 28.2%.
Dollar sales volume for the non major markets (NMM) was $10 billion. Q2 2021 sales volume was up 189% from Q2 2020 and up 59.1% from Q1 2021.
6MM Q2 2021 retail sales transactions of centers accounted for 46% of transactions where as NMM, centers account for 57% of retail sales transactions.
Q2 average sales price per square foot of retail space in the 6mm fell -17% from Q1 2021 in comparison to the price per square foot of retail in the NMM which grew (9%) over the same period.
Q2 average cap rates for 6mm marginally increased from Q1 to 6.2% while NMM remains flat from the prior quarter, 6.7%.
$4
$10
$-
$5
$10
$15
$20
$25
$30
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
'21
Billi
ons
6MM vs NMM QTR Retail Sales Transactions of $2.5M or Over (in Billion
$)
6MM NMM
$273
$163
$-
$100
$200
$300
$400
$500
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
'21
6MM vs NMM Average Sales Price Per Square Foot for Retail Properties
6MM NMM
6.2%6.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
'21
6MM vs NMM Average Cap Rates for All Retail Properties
6MM NMM
383
1,323
0
500
1,000
1,500
2,000
2,500
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
'21
6MM vs NMM QTR Number of Properties
6MM NMM
Acquisitions of hotel properties of $2.5 million or over rose 39% in the first half of 2021 rose over 200% to $20.4 billion, as acquisitions increased for both full-service (219%) and limited-service hotels (281%).
Acquisitions for full-service hotels totaled $8.3 billion during the first half while acquisitions for limited service hotels rose $12.1 billion. Limited service hotels made up 89% of the total volume of acquisitions.
The average cap rate among full-service hotel acquisitions has been treading downwards, to 7.6%. The average cap rate among limited-service acquisitions has remained stable at nearly 9%.
Dallas and Houston attracted the most hotel investors. Rounding out the top five were Los Angeles, Chicago, and Seattle.
HotelStrong investor interest
Source of data: Real Capital Analytics
$- $5
$10 $15
$20 $25 $30 $35
05Q
10
6Q2
07Q
30
8Q4
10Q
111
Q2
12Q
313
Q4
15Q
116
Q2
17Q
318
Q4
20Q
121
Q2
Bill
ion
s
Hotel Sales Transactions of $2.5 Million or Over
Full-Service Limited Service All
89%
20%
30%
40%
50%
60%
70%
80%
90%
100%0
5Q1
06Q
10
7Q1
08Q
10
9Q1
10Q
111
Q1
12Q
113
Q1
14Q
115
Q1
16Q
117
Q1
18Q
119
Q1
20Q
121
Q1
Share of Limited-service Hotels to Total Acquisitions
7.6%8.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
05Q
10
6Q2
07Q
30
8Q4
10Q
111
Q2
12Q
313
Q4
15Q
116
Q2
17Q
318
Q4
20Q
121
Q2
Cap Rates
Full-Service Limited Service
4847
3936
34333232
28252525
2222222121212120
DallasHouston
Los AngelesChicago
SeattleOrlandoAtlanta
PhoenixOrange Co
DC VA burbsAustin
DenverMiami/Dade Co
Raleigh/DurhamTampa
Richmond/NorfolkDetroit
East BaySan Diego
San Antonio
Most Active Retail Markets by Number of Property Acquisitions YTD Through June
2021
©2021 National Association of REALTORS®
All Rights Reserved. May not be reprinted in whole or in part without permission of the National Association of REALTORS®.
For question about this report or reprint information, contact [email protected].
COMMERCIAL MONTHLY INSIGHTS REPORT July 2021
LAWRENCE YUN, PhDChief Economist & Senior Vice President for Research
GAY CORORATON Senior Economist & Director of Housing and Commercial Research
BRANDON HARDIN Research Economist
MEREDITH DUNNResearch Manager
Download report at https://www.nar.realtor/commercial-market-insights
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