The Azucena Take: Property Winners and Losers of the Pandemic

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As the economy begins to recover; we are already witnessing a lot of opportunities in commercial real estate. As mentioned before, the pandemic accelerated the migration from major metropolitan areas to mid-sized and smaller communities. This has resulted in these markets having the largest gains over major cities.

The most obvious gains are in apartments, brought on by a housing shortage and a migration from major cities. San Francisco, Oakland, and San Jose saw a rise in vacancy along with a drop in average rent in Q1 2021. Almost 3 hours away, Sacramento saw a drop in vacancy along with a rise in the average rent during the same period. The same trend was experienced when comparing Los Angeles to the Inland Empire.

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Here is a quick breakdown of the rental market in California:

  • The national average rent is down by - 0.07%

  • San Jose rent is down by -16.2%

  • San Francisco rent is down by -9.5%

  • Sacramento rent is up by 7.4%

  • Riverside rent is up by 11%

Cities that have seen a jump in apartment rentals have also seen a similar trend regarding retail space rental. It’s down by -0.02% overall but breaking down the data presents a different picture. Cities like Las Vegas have seen retail rent jump while San Francisco has seen It drop. However there also some exceptions, such as Riverside which saw a drop in retail rent.

Office space has been the biggest hit sector, but it saw minor gains in secondary and tertiary markets.

So, does this mean an investor should pull out of these major metropolitans? No, because this happens every time there is some kind of economic downturn. The Bay Area saw a rise in vacancy along with a drop in rent when the Tech Bubble burst and during the 2008 Recession. However, it picked up when the markets started to recover.

Carlos Azucena