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Investors snapped up commercial properties at a record pace during the third quarter, The Wall Street Journal reported, especially apartment buildings, facilities equipped as life-science labs, and warehouses that can or do serve as distribution centers for e-commerce.
Sales totaled a record $193 billion, 19 percent more than in the same period in 2019, according to Real Capital Analytics (RCA).
The third-quarter performance brought year-to-date sales to $462.1 billion, 10 percent above the same stretch in 2019.
Foreign investors also are becoming more active in U.S. commercial real estate, with South Korea’s Meritz Alternative Investment Management buying 49-percent shares of a Manhattan building and another in Washington, DC.
Sales were strong enough during 2021’s first nine months that they offset declining sales of office buildings and shopping malls, RCA noted.
Demand drove prices to never-before-seen highs.
Green Street’s index of properties owned by real estate trusts has risen 26 percent from its trough in the summer of 2020 and 8 percent beyond its pre-COVID level, the analysis firm said.
The facets of commercial real estate popular now among investors sagged during the COVID War but did not crater, due largely to the U.S. Federal Reserve slashing interest rates to barely above zero and pouring cheap money into financial markets, giving even troubled property owners access to badly needed cash, the WSJ said.
TREND FORECAST: Today’s buyers are taking advantage of cheap money, courtesy of the U.S. Federal Reserve. When interest rates rise next year, the pace of purchases will slow and overleveraged purchases will move to the “troubled” page of banks’ ledgers.
Two decades ago, Gerald Celente forecast the end of the “mall era” in his best-selling book, Trends 2000. He also noted office real estate’s bleak future resulting from the COVID War in “The New Life of Lockdown” (19 May 2020) and other articles.
While some workers will want to return to centralized offices, more will choose to remain working at home. In an era when talent is hard to find and employers are hard-pressed to hold onto it, remote work has become a new norm that will ripple across urban economies for years to come, resulting in shuttered downtown businesses, reduced municipal revenue, and a lower quality of urban life, as we have described in countless articles such as “Office Workers’ Slow Return Endangers Landlords, City Finances” (9 Mar 2021).
The story is different for apartments.
The market for home buyers will be difficult for years to come: there is less land available to build new homes, prices for new or existing single-family homes are at stratospheric highs, mortgage rates are edging up, and lenders will continue to favor buyers able to make huge cash down payments, as we have detailed in various articles throughout the COVID War.
Those factors have consigned persons to rental housing who could have qualified for mortgages before the virus arrived.
The new, higher demand for apartments has pushed up rental rates. With rent claiming a larger portion of incomes, households will find it harder to save for a down payment to buy a home.
Consequently, as we said in “Rents Soaring: What’s Next?” (21 Sep 2021) more and more households will remain renters for longer, perhaps for life, and be denied a chance to take part in what has always been the primary way that American families have built wealth—home ownership.