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In 2021, investors bought a record $809 billion worth of commercial real estate, according to Real Capital Analytics, far surpassing 2019’s previous $600-billion record and doubling 2020’s total.
Among the best sellers:
- apartment buildings, raking in $335.3 billion, 128 percent more than in 2020, as landlords kept raising rates in the face of relentless demand;
- industrial properties, totaling $166.1 billion in sales, up 56 percent year on year;
- resorts and vacation hotels that will profit from the resurgence in leisure travel, with hotels racking up $44.5 billion in property sales, more than doubling 2020’s figure. However, sales of business-oriented hotels in urban centers slumped;
- warehouses also did well as demand for e-commerce fulfillment centers kept climbing.
In a detailed Wall Street Journal article, the value of properties owned by real estate investment trusts shot up 24 percent last year to a record level as December ended, according to data service Green Street.
Banks, insurance companies, and other financiers lent a record $690 billion for commercial property purchases last year, 8.7 percent more than in 2020 and 2.1 percent above 2019’s mark, analytics firm Trepp reported.
Dark and Dreary
While the headline of the article sounded upbeat, there are strong downsides in the commercial sector. Retail space and office buildings left investors cold, with online shopping and remote work having become entrenched during the COVID era. Sales of office buildings notched a mediocre $139.2 billion in 2021.
Manhattan, which usually leads the list of hot locales for real estate investment, ranked ninth last year with $18.7 billion in sales, Real Capital’s data showed.
“Manhattan has just fallen off the map relative to its size,” James Costello, Real Capital’s senior vice president, commented to the WSJ.
In its place, investors have turned to southern states where weather is warmer, housing is cheaper, and taxes are lower.
Dallas posted the greatest sales, at $48.9 billion, followed by Atlanta with $37.1 billion.
Suburban office towers in sunny spots such as Florida and North Carolina also drew more dollars than previously.
E-commerce continues to grow and demand for apartments has yet to slacken, while land and materials to build new multifamily properties remain in short supply.
Investors and asset managers have a lot of cash on hand and are eyeing medical offices, data centers, and student housing, which are growing in number but have yet to see the rise in value that other property sectors have, the WSJ noted.
The appetite for commercial real estate reflected that of the housing market, in which prices grew at a record 19 percent last year and sales were their most numerous in 15 years.
Both markets fed on low interest rates, which tempted investors to shift their assets to real estate, where opportunities for profit growth were better than elsewhere.
TREND FORECAST: The bulk of investment has come from private equity firms, especially in apartments, as we reported in “Invitation Homes to Buy $1 Billion Worth of Houses This Year” (1 Jun 2021) and “Private Equity Partners Target $5 Billion in Rental Houses” (27 Jul 2021).
Private equity firms followed the shift to remote work as workers, and investors, left office properties behind, as the data above shows.
The loss of investment momentum in office blocks in northern cities bodes a darker future for those cities. In articles such as “Labor Day: False Hopes of Commuter Economy” (27 Jul 2021), we traced that future: fewer commuters, a shrunken downtown economy, lower property values, a smaller tax base for those cities, and constrained spending leading to a lesser quality of life.
The center of gravity in American business is shifting southward (see “U.S. Financiers: Bye Bye Wall Street,” 2 Feb 2021).