Several recent reports point to a strong recovery in various segments of the commercial property market, which seems to factor-in a post-pandemic environment:
Investor Demand for U.S. Commercial Properties in Late 2021 Surpasses the Entire 2019 Levels
Commercial property investor inquiries (confidentiality agreements signed by prospective buyers) through the first week of December 2021 have surpassed the total for all of 2019, said CBRE. Robust investor interest in the second half of the year fueled this strength, with inquiries up 40% year-over-year from July 1 through December 8 and 14% compared with the same period in 2019.
-Retail inquiries surged more than 87% since 2020 and were slightly above 2019 levels.
-Hotel and office sectors also saw increases from 2020 but were down by 5% and 20%, respectively, from pre-pandemic 2019 levels.
-Multifamily and industrial inquiries continued their momentum from the past year with increases of 31% and 48%, respectively, compared with the same period in 2020. The pickup in investor inquiries coincides with an increase in investment transaction volume, which has also surpassed 2019 levels.
Days on the Market Decreasing
Also striking a positive note is a decrease in the average number of days on the market for property sale listings, says CBRE. Property listings came off the market faster in the hotel, industrial, multifamily and office sectors than they did in the same period last year. Retail listings saw a 3% increase in average number of days on the market.
Although improved compared with 2020, most sectors saw listings stay on the market longer than in the comparable pre-pandemic 2019 period, with retail listing longevity up by 22%, followed by hotel listings up 11% and office by 9%. Days on the market were nearly the same for multifamily compared with pre-pandemic levels, while industrial assets had a 10% decrease according to CBRE.
Positive Outlook Despite Uncertainty
CBRE also expects continued strong investment activity in 2022. Total investment volume is expected to increase between 5% and 10% over 2021 levels. There are potential headwinds, such as a more hawkish Fed and a Q1 surge in COVID cases due to the omicron variant. Nevertheless, the economy is expected to grow by 4.6% in 2022. Strong economic growth will fuel continued improvement in property market fundamentals and embolden investor confidence.
Manhattan’s Annual Office Leasing Total is 63 Percent Higher than in 2020
CBRE reports leasing activity in the Manhattan office market totaled 8.19 million sq. ft. in Q4, 30% ahead of the five-year quarterly average of 6.27 million sq. ft. Full-year leasing activity of 20.42 million sq. ft. was up 63% compared with the same period last year but lagged the five-year average by 19%.
“Strong Q4 2021 leasing activity is another data point confirming that the office market is on a recovery path,” said Nicole LaRusso, senior director of research and analysis for CBRE Northeast. “Even as the omicron wave has delayed short-term plans for return-to-the-office, occupiers continue to make long-term commitments to new space.”
The Manhattan availability rate rose 10 basis points (bps) from Q3 2021 to 18.7% and was up 330 bps from a year ago. Net absorption was negative 736,000 sq. ft. in Q4, bringing the year-to-date total to negative 15.74 million sq. ft.
According to the CBRE report, Midtown experienced 5.54 million sq. ft. of leasing in Q4, an increase of 288% from Q4 2020 and 44% above the five-year quarterly average. Annual leasing in Midtown was 12.85 million sq. ft., 46% ahead of 2020’s total, but 17% behind the five-year annual average. As a result of the robust leasing activity, Midtown’s availability rate dropped to 17.6% from Q3. At $83.45 per sq. ft., Midtown’s average asking rent was up 2% both quarter-over-quarter and year-over-year.
The Downtown office market also showed signs of a rebound, with average asking rents increasing 2% from the previous quarter to $59.62 per sq. ft. Leasing activity totaled 969,000 sq. ft. during Q4, up 864% from Q4 2020 but 17% behind the five-year quarterly average. This pushed annual leasing activity to 2.78 million sq. ft., up 24% from 2020, but still 40% below the five-year annual average.
Leasing activity in Midtown South totaled 1.68 million sq. ft. in Q4 2021, a 738% increase from Q4 2020 and 34% ahead of the five-year quarterly average. Annual leasing activity for 2021 increased to 4.79 million sq. ft., up 222% from 2020, but still 4% below the five-year annual average. The average asking rent was virtually unchanged from the prior quarter at $78.56 per sq. ft. but was down 2% year-over-year.
“The market has a lot of excess supply to wrestle with,” said LaRusso. “That said, we’re seeing strong demand for the higher quality office assets, and we expect availability to decrease in the better segments of the market in 2022”.
Demand for Architecture Services Continued to Grow in 2021
Demand for design services in the U.S. for the tenth consecutive month in November 2021, reported the American Institute of Architects
The ABI score for November was 51.0, down from 54.3 the previous month. While this score is down slightly from October’s score, it still indicates positive business conditions overall (any score above 50 indicates billings growth). During November, scoring for both the new project inquiries and design contracts moderated slightly, but remained in positive territory, posting scores of 59.4 and 55.8 respectively.
“The period of elevated billing scores nationally, and across the major regions and construction sectors seems to be winding down for this cycle,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Ongoing external challenges like labor shortages, supply chain disruptions, spiking inflation, and prospects for rising interest rates will likely continue to slow the growth in firm billings in the coming months.”
Key ABI highlights for November include:
- Regional averages: Midwest (57.6); South (53.7); West (50.9); Northeast (45.5)
- Sector index breakdown: mixed practice (56.9); multi-family residential (51.4); commercial/industrial (50.5); institutional (50.1)
Mega Warehouses Leases Jump by 19 Percent in 2021
2021 was a record year for large warehouse leases, driven by a rebounding economy and strong e-commerce sales, according to recent report by CBRE. Companies committed to 57 warehouse leases of 1-million-sq.-ft. or larger across the U.S. in 2021, a 19% increase from 2020.
“Demand for industrial space remains at an all-time high,” said John Morris, executive managing director and leader of CBRE’s Americas Industrial & Logistics business. “Space remains historically tight, but we still have just enough product to keep pace with demand. Occupiers are in a highly competitive market and space for deals this size are becoming few and far between, likely to result in growth markets becoming even more popular in 2022.”
The industry sector claiming the largest share of those 100 leases is general retail and wholesale, which recorded 44 transactions (46.1 MSF). This was a significant jump from 2020 when that sector recorded 32 transactions (35 MSF). E-commerce-only occupiers, last year’s leader, were second at 21 deals (27 MSF), followed by food and beverage users at 15 deals (14.2 MSF).
By market, Chicago had the greatest number of the top 100 transactions with 12. The Pennsylvania I-78/81 corridor followed with 11 but recorded the most transacted square feet at 12.4 million. The Inland Empire had 10 large transactions. Greenville – Spartanburg, SC, a fast-growing market in the southeast, made the top 10 for the first time.