The Azucena Take: Performance of Commercial Real Estate in Q3 2021

As we begin Q4, let’s look back at how the commercial real estate market performed in the previous quarter. There are some surprises but no shortcomings as most properties performed either at or above expectations. The result is that investors are seeing the rewards of their patience and planning.

Here is a breakdown of how each type of commercial property performed during Q3 2021:

Offices: Analysts and investors expected the office market to perform below expectations. While the gains were soft, a breakdown of the numbers shows a surprising result. During Q3 2021, 26 million sq ft of space was leased while vacancy rates were down to 16.1%. 

Retail: While not faced with the same uncertainties as office properties, optimism for retail was still not high. That is why its performance was a surprise to many. During Q3 2021, 28 million sq ft of space was leased (the best quarterly rate since 2017) while the vacancy rate hit 5.5% as rent rose by 2.5%. 

Apartments: To the surprise of no one, the apartment market was strong during Q3 2021. The numbers however were beyond what many were expecting. Net absolution rate was at 550K as vacancy rates hit 2.8% while rent jumped by 11.2%. 

Industrial: This was one of the few property types that were hardly impacted by the pandemic and whatever value was lost has been quickly gained. During Q3 2021, 157 million sq ft of space was leased while rent jumped by 3% each month as vacancy rates dropped to 4.4%. 

The overall takeaway is that commercial real estate performed above expectations during Q3 2021 while also fueling optimism for Q4 and 2022. With the holiday season starting, many expect an even stronger Q4 2021 while those who missed out should start planning for 2022.