The Azucena Take: Commercial Real Estate Sales in 2021

As the year comes to an end, investors are probably wondering how did commercial real estate perform in regards to sales during 2021? The short answer is that every market had one of the best years in recorded history (except for offices of course). There is so much to learn that one should look at the numbers to have a better understanding.

Obviously, the sale of commercial real estate was high compared to 2020 but it has also surpassed 2019 numbers. Commercial real estate transactions in 2021 were 12.7% above 2019 levels and up by 63% when compared to 2020.

To have a better understanding here is a breakdown of commercial property sales in 2021 when compared to 2019:

  • Self-storage is up by 56%

  • Hotels are up by 46%

  • Industrial is up by 17.4%

  • Apartments are up by 15.4%

  • Retail is up by 7.9%

Not every type of property had a solid year as the office market was down by -4.6%. However, it was not a total loss as medical offices were up by 12%

So why were commercial real estate transactions so strong in 2021? This is due to several contributing factors. The most obvious is that investors held off most major purchases in 2020 due to the pandemic. Next is all the financial liquidity that was made available in 2021 by the government and banks (resulting in cash flows being up by +28%). Finally, there is the issue of inflation which has influenced investors to seek commercial properties.

This demand has resulted in rising prices along with a drop in cap rates. When compared to 2020, the cap rates in 2021 have dropped for each property by the following:

  • Apartments cap rates are down by -30 BPS

  • In select metros, Apartments cap rates are down by -60 BPS

  • Industrial cap rates are down by -35 BPS

  • Retail cap rates are down by -25 BPS

  • Office cap rates are down by -10 BPS

It should be noted that some metros and property types have still not fully recovered. Despite these shortcomings, smart investors who had better positioned themselves have been reaping the rewards of the recovery. Those who missed out should start planning for 2022 as it's expected to be another prosperous year.

The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap.

Carlos Azucena