Commercial real estate (CRE) endured a volatile year in 2020. Market conditions started strong but took a big hit when the COVID-19 pandemic blindsided the global economy. While many markets began recovering toward the end of the year, 2020 was a down year for commercial real estate.

Here’s a closer look at some of the key statistics and data for commercial real estate in 2021 to help investors see what’s changed and what the future may hold.

Commercial real estate statistics on the impact of COVID-19

The COVID-19 pandemic had a significant effect on the commercial real estate market in 2020. The data bears this out.

For example, respondents to the National Association of Realtors’ “Commercial Real Estate Trends & Outlook January 2021 Quarterly Market Survey” reported a meaningful amount of change in the fourth-quarter survey compared to the one taken in Q3 2020.

Here’s a look at some of the more significant findings reported by survey respondents in Q4 of 2020 compared to what they saw in the pre-pandemic first quarter:

  • 59% reported an increase in tenants with missed, late, or partial office, retail, or industrial rent payments, up 5% from Q3.
  • 63% reported an increase in missed/late/partial rental payments for multifamily residential space, up 10% from Q3.
  • 65% reported an increase in tenants who received rent concessions, unchanged from Q3.
  • 46% reported an increase in leasing transactions in suburban areas versus the central business district, up 3% from Q3.
  • 48% reported an increase in demand for flexible/co-working office space from individuals such as gig workers, down 3% from Q3.
  • 39% reported an increase in demand for flexible/co-working office space from enterprise clients and firms, down 4% from Q3.
  • 69% reported an increase in companies leasing or moving into offices with smaller square footage due to working from home, up 7% from Q3.
  • 63% reported an increase in short-term office leases, up 4% from Q3.
  • 53% reported an increase in the repurposing of vacant malls, up 1% from Q3.

As that data shows, the COVID-19 outbreak had a widespread impact on the commercial real estate sector. More than half of the respondents experienced an increase in missed, late, or partial rent payments because tenants couldn’t afford to pay rent due to government-related shutdowns or weak economies. That had a noticeable impact on landlord cash flows, with the retail sector among the hardest hit due in part to a string of bankruptcies.

Meanwhile, the pandemic dramatically impacted the office sector. Many companies and individuals struggled with remote work, which drove an uptick in demand for flexible and co-working space, especially in suburban areas. Conversely, given the uncertainty of when companies could fully return to the office, they cut their spacing needs, opting for short-term leases.

Changes in commercial real estate pricing

Despite the effect the pandemic had on the commercial real estate market, pricing continued to grow. According to the “May 2021 RCA CPPI: U.S.” summary report, U.S. commercial real estate prices rose at a 1.3% annual rate from April 2020 to 2021.

Driving that increase were apartments (up 7.6% year over year) and industrial properties (up 9.4%), the retail sector (up 1.3%), and office buildings (up 3%).

The most significant callout here is that industrial, apartment, retail, and office indices all posted positive annual returns for the first time since the pandemic began.

Commercial real estate dollar volume in 2021

Overall, the dollar volume for commercial real estate in the U.S. was 18% lower year over year in the first quarter of 2021 compared to the third quarter of 2020, where the volume was 57% lower year over year than in 2019. In addition, office sales were off 60%, while apartment transactions declined 51% compared to the same period as buyers and sellers chose to wait for a bit more clarity before transacting.

While fewer office properties changed hands in the third quarter due to the uncertain outlook caused by the pandemic, the fourth quarter got off to a great start. For example, leading New York City office REIT SL Green Realty (NYSE:SLG) agreed to sell 410 Tenth Avenue in early November for $952.5 million, representing a substantial profit for the company and marking the largest commercial property sale in the U.S. since March.

Meanwhile, thanks to widely available credit, only 1% of the overall commercial real estate dollar volume during the third quarter were sales of properties out of distressed situations. However, there were two notable areas of distress: retail (3% of deal volume) and hotels (9%). That’s due to the outsized impact the pandemic had on those two property sectors.

Commercial real estate revenue in 2021

According to IBIS World, the pandemic significantly impacted commercial real estate industry revenue in 2020 with an estimated drop of 17.8% to $893.2 billion as corporate profit and the value of private nonresidential construction activity declined significantly. That’s the sector’s second down year in a row and would put it 18.8% below its peak of $1.1 trillion in 2018. Further, 2020’s significant drop puts the commercial real estate market’s size below where it was in 2015.

Demand for commercial real estate in 2021

One of the most significant factors for commercial real estate demand is that a robust economic recovery has now become the question of “when” rather than “if.” It’s undeniable that rapid growth for the remainder of this year and next will generate pre-pandemic-level demand for various CRE types.

However, offices still face long- and short-term issues with the permanent pivot to work from home spurred by the pandemic, though more workplaces reopening later in the year could lead to the possibility of office occupancy and rents beginning to stabilize. Long-term, the demand for office space is still uncertain since no prior office market downturn has seen such a dramatic shift.

Meanwhile, one of the few bright spots in the commercial real estate sector was industrial property demand. That’s due to the continued growth of e-commerce and the need for more storage space for inventory because of the pandemic. However, the demand for industrial space still outstripped supply, as net absorption was 40.2 million square feet, which fell short of new supply by 25.4 million square feet because of the amount of space built on speculation. However, with warehouse space demand expected to grow by 1 billion square feet by 2025, this market could tighten considerably.

Vacancy rates for commercial real estate in 2021

The continuing uncertainty has contributed to vacancy rates forecasted to rise to 19.2% in 2021, which would exceed the previous 2010 high of 17.6%. According to Moody’s Analytics, these vacancy rates will then hold steady in 2022, leading many to believe that the office sector will suffer more than any other in 2021. Industrial real estate will benefit the most from the tailwinds of a sturdy economic forecast and the acceleration in e-commerce.

Rent growth for commercial real estate in 2021

Apartment rents have taken a positive turn following their 3% decline in 2020, with national average effective rents expected to rise by 2.1% in 2021 and a return to pre-pandemic levels forecast by 2022. Dense urban areas like the Bay Area and New York and their multifamily markets were rocked hard by the pandemic, but the low point has been reached and recovery is on the horizon.

Due to strong demand, the industrial sector has shown more than a glimmer of hope in recovery with an expected rent rise of 3% in 2021.

“The need to warehouse inventory and match consumers’ expectations for expedient shipping will provide more than enough absorption to push rents higher and vacancies lower,” said Thomas LaSalvia, Senior CRE Economist at Moody’s Analytics.

Retail rents are expected to fall another 6.8% in 2021 as brick-and-mortar retailers struggle with e-commerce competition.

Market Overview

The Global Commercial Real Estate Market is expected to register a CAGR of more than 10% during the forecast period.

COVID-19 pandemic severely affected the commercial real estate sector, as travel restrictions and social distancing effected the public mobilization, commercial works and gathering facilities. Office sector, retail sector and hospitality sector are the most affected market segments during the pandemic. Furthermore, now the global market is in recovery phase, as COVID-19 protocols are relaxed, and the sales are reaching to pre pandemic levels in the market.

The significant growth in commercial real estate market is leveraged by urbanization, digitalization of the commercial sector and increasing foreign investments into the sector. For instance, in 2021 foreign investments in European commercial real estate market accounted for half of the capital investments in that region, which is almost EURO 130 million.

Moreover, Asia-Pacific, China, Canada experienced growth in office space absorption, whereas Europe and the United States saw declined rate. In addition, Asia-Pacific is leading in terms of retail sales and logistics warehouse absorption in the global market.

Scope of the report

Commercial real estate (CRE) refers to property for business-related purposes or to provide a workspace rather than as a living space. The report on global commercial real estate market includes market dynamics, technological trends, insights, and government initiatives related to market. Also, the report covers segmentation by type (offices, retail, industrial/logistics, multi-family, and hospitality). The report offers market size and forecasts for Global Commercial Real Estate Market in value (USD Billion) for all above segments. The report also covers the impact of COVID-19 on the market.

By Type
Offices
Retail
Industrial/Logistics
Multi-family
Hospitality
By Geography
Asia-Pacific
China
Japan
India
South Korea
Rest of Asia-Pacific
North America
United States
Canada
Rest of North America
Europe
United Kingdom
Germany
France
Russia
Rest of Europe
Middle East & Africa
Saudi Arabia
United Arab Emirates
Qatar
South Africa
Rest of Middle East & Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Rest of Latin America

Report scope can be customized per your requirements. Click here.

Key Market Trends

Office Markets to Witness Increased Growth

Office market had a strong hit by the pandemic globally. Despite the huge disruption, now the market is in recovery phase. Furthermore, Increasing investments into the sector boosting the economic recovery in the market, and officing leasing activities are also in growing.

In 2021, office occupancy experienced a robust growth of more than 80% in almost 390 metro cities across the globe. Moreover, 30 million square feet (msf) office space has been absorbed since third quarter of 2021. Meanwhile, rental growth of the sector is in slow recovery phase, EMEA experienced a significant growth in rental growth.

In addition, most of the office space is absorbed by Class-A offices with more than 61%, followed by Class-B and Class-C offices with 32% and 7% respectively.

Furthermore, Asia-Pacific (APAC) region is leading in the office market, due to population growth, GDP growth, middle class consumers, working age population leveraging the office demand. Also, the APAC region contributes more than 50% of office construction in global market.

Global Office Real Estate Rental Growth

Retail Sector is Likely to Witness Significant Growth

Despite the COVID-19 pandemic disruption, the retail real estate sector saw a significant growth which is leveraged by digitization of work, the transformation of physical retail, and the shift towards environmental, social and governance (ESG) considerations. Moreover, retail sector facing many challenges from e-commerce sector, and changing customer behavior during the pandemic. Despite these challenges the sector stood resilient, as the e-commerce sales in pandemic accounted for only 14% compared to overall retail sales.

Moreover, to meet the consumer demand and to adapt the changing retail environment, developers are focusing on different strategies. Such as remodeling shopping centers to serve multiple purposes, customizing tenant mix, developing new lease models to attract latest business models.

In addition, to meet the consumer demand some retailers are expanding their business by omnichannel strategies, such as click-and-collect, curbside pickup and ship-from-store by adopting new technologies.

Furthermore, the retail sales increased in Asia-Pacific region, followed the United States, and Europe. Also, retail sales experienced growth in different segments such as in store retails, grocery stores, apparel, departmental stores, restaurants, and bars. In which instore retail registered highest sales in 2021 compared to 2019.

Asia-Pacific Office Sales in Selected Regions

Competitive Landscape

The global commercial real estate market is highly competitive and fragmented with many players. Most of the players are expanding their business by investing strategically in partnerships, acquisitions, etc. Office sector, retail sector and logistic sector are most invested segments in the market. Furthermore, the investments into the market are driven by robust office space take-up, declining vacancy levels, and rising rentals despite the disruption caused by the pandemic. Some of the major companies are Brookfield Asset Management Inc., Prologis, Inc., Boston Properties, Inc., WANDA Group, etc.

 

market concentration.PNG

Recent Development

  • October-2021: Colliers, the Leading diversified professional services and investment management company has announced that it has entered into an agreement with Colliers Italy for an acquisition. This acquisition enables Colliers Italy to increase service capabilities and leveraging its vast resources to emerge as a leading innovative platform across Europe.
  • October-2021: GTIS Partners LP, a real estate private equity firm in New York announced completion of acquisition of USD 248 Million in real estate assets by its GTIS Brazil Logistics Real Estate Investment Fund located in São Paulo. The assets include logistics warehouses and include Centro Logístico Embu, Distribution Center Barueri, and Distribution Center Rodoanel.