The Azucena Take: The Solid Performance of Commercial Real Estate in 2021
Last month, Marcus & Millichap partnered with Wealth Management Real Estate to conduct the 2H 2021 Investment Sentiment Survey to get an idea of how investors felt. The results show that optimism remains strong with an outlook of 165 points, the same level of confidence as early 2021, and a major jump compared to the same time in 2020 or after the 2008 Crash.
When it comes to the performance of commercial property types: apartments, industrial, and self-storage outperformed beyond expectations. All three properties didn’t take a hit during the pandemic and are expected to have their value continue to rise. That is why we will go more into details regarding the performance of these property types.
Apartments
The demand for apartments was strong during the pandemic and it continues to be strong due to the housing shortage. This is especially true in suburban communities and metropolitans located in the South. Momentum in other areas has started to gain traction with economic restrictions being lifted and people returning to the workforce.
Apartment net absorption was at 218K (an all-time high) while the vacancy rate dropped to 3.8%. Overall; 74% of investors expect the value of apartments to continue to rise in the next 12 months.
There has been some debate over the performance of apartments due to the evection moratorium. While some tenants and property owners may not have worked together, the majority chose to take advantage of all the relief programs to ensure their economic stability.
Industrial
During the lockdown, many retailers started to invest more in industrial to accommodate the rise of online shopping. That trend continues in 2021 as it’s expected that 325 million square feet of new space will be added by the end of the year. While that growth may seem massive, it might not be enough to meet demand as vacancy rates are at 5%.
Overall; 74% of investors expect the value of industrial space to rise by 7% in the next 12 months.
Self-Storage
Self-storage saw a major jump due to families moving in and students returning home during the pandemic. While construction of new self-storage units is at an all-time high, it has failed to keep up with demand as vacancy rates are at 5.5%. At the same time; rent has jumped by 9.7% since the start of 2021.
The overall takeaway is that the economic recovery we predicted back in February is happening. Given how much investor confidence has skyrocketed since the start of 2021, there are many reasons to be optimistic about the future. As the number of Americans being vaccinated rises, investors are looking to prosper.