The Azucena Take: Properties with the Best Price Growth

RCA recently published their Commercial Property Price Index that showcases which types of commercial properties have grown in value in 2021. Most of the results are not surprising but there is one that will stun anyone (who has not done their research). 

According to their findings, the three property types that had the strongest year-over-year (YOY) price increase are Industrial and Apartments with Suburban Office taking the top spot. It's obvious that Industrial and Apartments were going to see the most gain but Suburban Office taking the top spot was a surprise. However, there are several factors in play that explain why Suburban Offices have gained in value. 

It helps to break down each property type to understand why it has grown in value. 

Industrial had a price gain of 13.6% in 2021 due to a 5.9% rent growth along with a -30 BPS in vacancy. Adding to its rise in value has been a cap rate compression of 20 BPS. Most of this has been attributed to the rise of e-commerce during the pandemic. Back in 2020, many retailers started to invest more in industrial space to accommodate the rise of online shopping. That trend continues as it’s expected that 325 million square feet of new space will be added by the end of 2021. 

Apartment had a price gain of 14.7% in 2021 due to -90 BPS in vacancy plus a 4.3% in rent growth. 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. 

Suburban Office is the biggest surprise given how uncertain the future of office space looks. It had a price gain of 14.8% in 2021 but it has been driven by speculation instead of numbers. Investors anticipate that more companies will have to establish an office in suburban areas to accommodate workers who have relocated during the pandemic. This is more true regarding those who don't want to sit in traffic for several hours every day. 

While investing in Industrial and Apartments is backed by numbers and performance history, Suburban Offices are a toss-up. They could be worth their value in the future or it could be a miscalculated investment. It's best to consult with an expert regarding any kind of investment before moving forward.