The Azucena Take: Comebacks 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.
In the last The Azucena Take, we looked at the properties that performed well or above expectations. This week, we will look at the properties that took a hit during the pandemic and how they are performing during the road to recovery.
When it comes to the performance of commercial property types: hotels, seniors housing, retail, and office all took a major hit during the pandemic. With economic restrictions being lifted and the population getting vaccinated, many of these properties have fully or are on the road to recovery in 2021.
Hotels
Tourism and leisure were severely restricted during the pandemic; thus hotel property owners took a major financial hit. Hotels regained their momentum in 2021 as occupancy levels were at 69% in July 2021. While a major jump compared to 47% in July 2020, it was still below the levels of July 2019. This could mostly be attributed to numerous concerts and conventions having canceled their 2021 live event.
What hotels lost in occupancy rates, they made up for through a rise in room rates. The average daily rate for a hotel room in 2021 was up by 6% compared to the same time in 2019. Hotels located in small towns, along major highways, and drivable resort destinations have seen the most gains in 2021.
Overall; 47% of investors believe now is the best time to start investing in hotel properties. At the same time, 59% of investors believe the value of hotel properties will rise in the next 12 months.
Senior Housing
Senior Housing took a major hit during the pandemic but it’s now slowly recovering. While it has not seen a major comeback, its absorption rate was in the positives while vacancy rates were low in Q2 2021. Overall; 76% of investors believe the value of senior housing will rise in the next 12 months.
Retail
The success of retail property is based on its location and the goods it sells. Retail space dedicated to needed goods such as supermarkets, pharmacies, and hardware stores. Shopping malls have taken the biggest hits while the success of restaurants and boutique stores have all depended on their location.
Overall; 17% of investors believe now is the best time to start investing in retail properties while 32% believe it’s better to sell. At the same time, 39% of investors believe the value of retail properties will rise in the next 12 months.
Office
The future of the office space is still unclear. Due to the Delta variant, many companies have pushed back their plans to bring people back to the office. At the same time, there has been backlash among workers against mandatory returns to the office. Employers are trying to find the right balance of keeping their teams together while accommodating a changing job market.
While the net absorption rate was at +1.4 million, it was still one of the lowest gains since 2010. Overall; 36% of investors believe the value of office space will rise in the next 12 months but it will be minimal. However, 43% of investors feel now is the best time to buy in preparation for the job market of 2022. Meanwhile, 47% prefer to hold while only 10% feel selling is the best option.
The overall takeaway is that the economic recovery we predicted back in February is happening. Even properties that underperformed compared to 2019 are still doing good. Given how much investor confidence has skyrocketed since the start of 2021, there are many reasons to be optimistic about the future.
To learn more about the 2H 2021 Investment Sentiment Survey, also check out: