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Q2 Data Indicates CRE Recovery is Underway


As the summer comes to a close and we look back on data from the second quarter of 2021, all signs point to a strong recovery for commercial real estate. The top indicators we review include square foot pricing, vacancy and absorption rates, as well as occupancy rates. Our data illustrates a rebound across nearly every CRE sector.


According to data from Real Capital Analytics, commercial property sales from Q2 2021 lined up favorably with second quarter sales from before the pandemic, with investor spending totaling $144.7 billion. This is nearly three times the amount recorded in Q2 2020, and right on track with pre-pandemic numbers, which averaged $127.2 billion in the second quarter from 2015 – 2019. This growth was most evident in suburban markets as people continue to move away from major metropolitan areas.


Per square foot price is an important indicator of growth because it shows demand, and the demand is increasing across a variety of CRE sectors. The average per square foot price jumped 3.25% over Q1 figures, reaching the highest level since the pandemic.


The multifamily sector has an increased rent rate and a consistent vacancy rate. Data from Moody’s Analytics REIS is forecasting multifamily rent rising by approximately 2.3% this year and suggests that negotiating leverage is once again in the hands of the landlord. At the beginning of 2021 it was standard for a tenant to expect concessions from their landlord, be it a free month of rent or a reduced rate for a period of time. That is no longer the case as most landlords were able to fill their vacancies in Q2 without offering concessions.


As it’s been throughout the pandemic, the industrial sector has continued to perform well and has an optimistic forecast for the remainder of the year. A bounce-back in the hotel sector has come as a surprise, as the occupancy rate in Q2 passed the 60% threshold and average daily rates increased by 23%. Moody’s Analytics REIS predicts the sector will hit pre-COVID ADR levels by the end of Q3 2021, a positive outlook that didn’t seem possible earlier this year.


The two sectors that are still facing some hurdles for the rest of the year are the office sector and the retail sector. Office rent is expected to fall by 2.2% for the rest of the year and vacancies will rise and remain elevated through 2023. Retail is in a slightly better position: rent rates did not fall but they have and will continue to remain flat, and vacancies will remain elevated through 2023.


A year ago, many of us didn’t predict such a positive and rapid recovery for the CRE industry. It continues to be an ideal time to invest, with interest rates remaining low, demand from tenants increasing, and leverage shifting back to landlords.


Justin Langlois, CCIM is a Commercial Real Estate Investment Advisor with Stirling Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.

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