The Azucena Take: How Investment Real Estate is Walking Out of the Pandemic

When the pandemic hit back in 2020, it fundamentally changed the economic landscape. Lockdowns were put into place, economic activity was restricted, and in-person events were canceled. Come 2021 and the vaccines began to roll out followed by the beginning of a return to normalcy. As of 2022, most jobs that were lost have been recovered while all economic restrictions have been lifted.

However, the economic changes that were brought on by the pandemic are still happening (for the better). It's also reshaping the investment real estate market for those who had prepared ahead of time.

The Recover in a Glance

First, it helps to have an idea of what the current economic landscape looks like in 2022: 

Number of jobs recovered: +95%
Core retail sales: +26.9% (compared to pre-pandemic numbers)
Money Market fund: +$5.7 trillion

Investment Property Performance

As the Summer Season begins, let’s look back at how the investment real estate market has performed from the start of the pandemic to now. Here is a breakdown of how each type:

Industrial: This was one of the few properties that was not negatively impacted by the pandemic. Demand dropped slightly in March but it picked up right away come April. Rent for industrial space continues to grow while vacancy is still dropping. The only problem has been supply is unable to keep up with demand. This problem is only going to continue as manufacturers rethink their supply chain logistics and bring more jobs back to the states. 

2022 Net Absorption Rate: 430 million SqFt
2022 Completions: 400 million SqFt
2022 Vacancy Rate: 3.5%

Hotels: The hospitality industry took the biggest hit during the pandemic but it has seen one of the fastest recoveries in 2021. This has been attributed to the rollout of vaccines, the lifting of economic restrictions, and pent-up demand. The only setback that hotels face is a labor shortage as many are operating with 20% less staff than before the pandemic. 

Average Occupancy Pre-Pandemic: 67%
Average Occupancy Current: 62.7%

Apartments: Many were unsure of the Apartment market after the government issued a rent freeze and a moratorium on evictions. Government relief was able to help out so many property owners, making 2020 a profitable year. Currently, the apartment market has been very lucrative thanks to the housing shortage with rents continuing to grow and vacancy hitting an all time low. 

2022 Net Absorption Rate: 410 million SqFt
2022 Completions: 390 million SqFt
2022 Vacancy Rate: 2.7%

Retail: This was one of the hardest hit and most misunderstood markets. Pre-pandemic, the retail market was undergoing a metamorphosis brought on by the rise of e-commerce and changing market trends. On the surface, it looked like the end of traditional brick-and-mortar stores. The reality was that many once respectable brands had failed to adapt or had been mismanaged for years. 

When the pandemic hit, retailers that were not essential had to shut down. Brands that were already struggling finally collapsed. By 2021, the retail market was starting to recover. Properties located in desired areas or shopping centers are thriving. Properties located in undesirable areas or derelict shopping centers continue to struggle. 

2022 Net Absorption Rate: 25 million SqFt
2022 Completions: 20 million SqFt
2022 Vacancy Rate: 7%

Office: This is going to be one of the biggest enigmas for investors. Managers and executives want people back in the office but employees want to mostly work from home. Thus, employers will need to find a compromise while revaluating their office needs. However, demand for smaller offices and those located in suburban areas have grown in value. For now, it's just a waiting game.

What it Means for Investors?

The big takeaway for investors is that the commercial real estate market has changed a lot since the pandemic. Those who prepared for the economic boom of 2021 are now looking to plan for 2023 and beyond. That is why an investor should absolutely speak to experts and do their research to capitalize on the emerging opportunities. 

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