Activity has returned to the commercial real estate market nationally with some clear winners and losers, according to the Coldwell Banker Commercial (CBC) mid-year 2021 report.
CBC sees strength in the industrial, self-storage and net-leased markets, while the hospitality, retail and office leasing markets continue to cause concern.
Landlords and tenants in the commercial real estate space have adopted approaches that show they expect inflation will last. Leases with Consumer Price Index clauses and rent increases of 4 percent to 5 percent — versus the typical 2 percent to 3 percent — are being signed.
CBC professionals in a few leading markets also see slight moderation in developer tempo from the beginning of the year due to soaring material costs.
Record amounts of money that was sitting on the sideline has returned to the market, but investors have discovered there’s little product available. While low-interest rates drove the decline in capitalization rates during the COVID-19 pandemic rather than operating fundamentals, there remains sufficient room for compression as frustrated buyers are now open to purchasing properties at much lower cap rates than they would have ever considered prior to the pandemic. Interestingly, markets didn’t experience a wave of distressed properties materializing from the pandemic.
The 1031 exchange program faces an uncertain future, a key factor investors must now consider. This transaction tool became popular during the pandemic, creating another surge in demand for replacement properties as well as a significant sense of urgency to close deals quickly. Exchange investors who prefer more passive investments are avoiding apartment buildings, multi-tenant retail centers and properties that require more day-to-day management.
That’s the national picture. As for Grand Junction and Mesa County, the overall market for commercial real estate was strong in the first six months of this year. Most of the demand was for multi-family, industrial and land along with self-storage units. Interest in retail and office was mixed.
Investors drove the real estate market in the first half of the year, and I anticipate it to remain that way through the rest of 2021.