Archives for October 2021

Why is Commercial Real Estate Outperforming?

Global Pandemic Has Created Various Headwinds

Inflationary pressure and supply-chain disruptions will weigh on economic growth, but recession risk low
Labor shortage driving wage inflation and limiting recovery – Retail and Hotels particularly impacted
Return to Office remains a big unknown

Despite Disruptions, CRE Maintains Strong Performance

Apartment and Self-Storage vacancies sit at record-lows while rents are soaring
Industrial vacancies falling and rents on the rise despite elevated construction levels
Seniors Housing, ST-Retail and some Hotel segments on road to recovery; Downtown Hotels, indoor malls lagging

Long-Term Outlook Remains Favorable

U.S. household savings and wealth up significantly from pre-pandemic – Fuels spending and economic growth
Supply-chain disruptions limit new construction and benefit existing commercial real estate
Underlying demand drivers to support CRE in long-term

As of 2Q 2021
Sources: Marcus & Millichap Research Services, RealPage, Inc., Costar Group, Inc., Yardi Matrix

Consumer spending sturdy last month. Unfazed by the end of federal unemployment benefits and other dissipating stimulus, core retail sales increased 0.7 percent in September and 13.5
percent from the same period last year.
Strong sales support retail properties. Consumer spending supported brick-and-mortar retailers through the worst of the health crisis.
Variants have minimal impact on dining out. Receipts at eating and drinking places increased 29.5 percent year over year, the second-highest annual rise after gasoline stations.

Supply chain issues threaten holiday sales. As global trade reopens unevenly, the carefully orchestrated supply lines that existed prior to the pandemic are having trouble returning to
previous efficiency.
Vaccine mandates cloud short-term outlook. Over the past several weeks an assortment of vaccine requirements, ranging from public to private and local to federal, have been enacted across the country.

*Through September
Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Placer.ai; U.S. Census Bureau

Hiring slows again in September. The complete expiration of federal unemployment insurance did not translate into accelerated job growth last month as the health crisis continued to present
challenges.
Demand for industrial spaces and employees to fill them rises. In contrast to other segments of the economy, the trade, transportation and utilities sector has already surpassed its pre-pandemic
headcount and continues to grow.
Vaccine requirements constrain onboarding. After previous strong growth, hiring at bars and restaurants shifted minimally in September. Despite reopenings, some people continue to be wary
of dining out, while New York and Los Angeles now require proof of vaccination from patrons, limiting visits.

Decisions to not work shrink labor force. While the unemployment rate fell to a new pandemic period low of 4.8 percent, part of the decline can be attributed to a contraction in the size of the
civilian labor pool.
Higher wages and other costs impacting company operations. Although hiring slowed last month, shortages in many key positions remain, adding upward pressure to wages.

Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics

Industrial Properties Maintain Strong Investment Outlook

Industrial had 3rd strongest price gain, at 13.6% Y-O-Y; Rents grew 5.9%, vacancy fell 30 bps to 5% in 2Q 2021
Thriving eCommerce and current supply chain issues have drawn significant investor interest
Investors penciling aggressive rent gains into valuations

Underlying Demographic Trends Bolster Apartment Demand

Apartments had 2nd greatest price growth, 14.7% Y-O-Y; Through 2Q, rents grew 4.3% and vacancy fell 90 bps
Aging millennial population and limited housing supply to support long-term Apartment demand

Suburban Office Comes Out on Top

Suburban Office had strongest price growth at 14.8%; While rents up only 0.6%, vacancy rate up 230 bps Y-O-Y
Price gain result of recuperating losses, sale composition with stronger assets and investor speculation
Investors betting on workers relocating to the suburbs, pulling employers and businesses with them

As of August 2021
Includes sales $2.5 million and greater
Sources: Marcus & Millichap Research Services, Real Capital Analytics