Today, the United States economy is gradually rebounding from the effects of the covid pandemic. Various economic indicators show that a recovery is in progress, and life is beginning to return to normal across the country as well.
Commercial real estate has experienced some fluctuations in 2020 and 2021, but overall, the sector is on an upswing. Jonny Weiss, a real estate expert from Greenwich, CT, shows how commercial real estate has improved since the devastating downswing during 2020 and how the nation’s commercial real sectors are impacting the commercial market
The Commercial Market as a Whole
With all of the negative impacts caused by the covid pandemic, it would stand to reason that the commercial real estate market should be suffering. However, the market has been much more resilient than analysts expected at the beginning of the pandemic.
This strength comes from aggressive programs from the U.S. Treasury and the Federal Reserve Bank which were meant to help property owners and investors. The Fed has lowered interest rates as a means of helping commercial and residential investors save money.
In addition, the commercial real estate market was in a strong and stable position at the beginning of the pandemic, with low vacancy rates and increased rents, which has helped cushion the downswing.
The Post-Pandemic Rebound
According to Real Capital Analytics, the amount that investors spent on commercial property tripled between the second quarter of 2020 and the second quarter of 2021. Smart investors snapped up quality commercial properties while prices were relatively low during the pandemic, driving prices back up to their pre-pandemic levels.
The best-performing metro areas were Tampa, Phoenix, Atlanta, and Dallas, all of which experienced record sales volumes during the first half of 2021.
Performance of Individual Sectors
The following analyses by Jonny Weiss gives a glimpse of how the commercial real estate market sectors are performing in 2021:
Industrial Real Estate
The industrial real estate sector has, in some respects, been carried by warehouse space. Jonny Weiss believes a sharp rise in e-commerce activity, brought on by the pandemic, has led to an increased demand for warehouse and fulfillment center space. Primarily due to warehouse demand, industrial space across the country has an impressively low vacancy rate of 5.7 percent. In some metro areas like Nashville, the industrial vacancy rate is as low as 3.1 percent.
According to CommercialEdge, industrial sales price per square foot was up to $103 in May 2021, up more than 16 percent year over year.
Office space experienced a sharp decline during the pandemic. Many offices were closed, temporarily or permanently, with all personnel working from home. Many companies let go of a portion of their office space and adapted to a hybrid working model. Vacancy rates were as high as 15 percent in the fourth quarter of 2020.
Jonathan Weiss notes that 2021 has ushered in positive changes for the real estate office sector as more employers are mandating returns to the workplace. Vacancy rates remain high, but economic optimism is increasing. Most analysts believe that office employment will return to pre-pandemic levels in 2022.
The Hospitality Market
The hospitality market has been volatile since the beginning of the pandemic, but it is starting to rebound. Both restaurant and hotel spaces are largely open, hosting guests in the absence of lockdown orders.
Hotel occupancy rates were down to 21 percent in April 2020, but they rebounded to 50 percent occupancy in October, only slightly off their pre-pandemic levels of about 60 percent. The 2021 outlook for hotel occupancy is bright, but the further spread of the delta variant and vaccine restrictions may potentially lead to more shutdowns in severely impacted areas of the country.
The Commercial Real Estate Outlook for 2022 and Beyond
Looking towards 2022, the commercial real estate market is projected to grow, with lower vacancy rates and higher rents. The transaction volume for commercial real estate should recover through 2023, nearly reaching 2019 levels. Jonny Weiss is hopeful that 2021 will see a transaction volume of $500 billion, with $550 billion expected in 2022. Commercial rents are expected to grow by 3.6 percent by 2023 in the industrial sector. The office sector may continue to post unimpressive rent figures, staying nearly steady at -0.3 percent in 2023.
How the Commercial Real Estate Sector Affects the Economy
According to the NAIOP Research Foundation, the commercial real estate sector has a significant impact on the economy as a whole. Before the pandemic, it was responsible for 18.1 percent of the country’s GDP and supported 26.2 million jobs. The pandemic’s effects on commercial real estate have been damaging in some respects, but economic indicators show that recovery in the market is proceeding at a quick pace.
Growth and Change
The commercial real estate market should continue to grow beginning in 2021 as the pandemic restrictions ease and more people get back to work. Office and hospitality real estate have received the strongest impacts, but these sectors are also on the rise as recovery continues.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes