More than a year after the onset of COVID-19, the US commercial real estate sector is seeing its first solid signs of recovery. While some unknowns still lie ahead — retail’s uncertain re-emergence, and companies’ changing office needs — the CRE industry managed to steer away from worst-case scenario damage. Buyers are more active on Crexi than ever (with activity up 91.3% in May 2021 compared to the previous year), and CRE is poised to capitalize on opportunities spanning asset classes.
Crexi analyzed emerging trends, using its proprietary internal marketplace data, to better understand what drove buyer, seller, owner, and tenant behaviors this past year. Here are some of the most interesting insights gleaned from the first half of 2021.
Summer’s arrival coincides with searches for CRE opportunities in sunnier markets.
Thanks to COVID-19’s acceleration of digital tool adoption, property seekers can more easily explore commercial investments far beyond their home markets. Discerning investors are increasingly seeking commercial real estate opportunities in specific markets, such as the Midwest, so-called 18-hour cities, and Sunbelt metros. The last 12 months have seen 44% of buyer traffic on Crexi come from in-state, while 56% of buyers originated out-of-state.
The Southern and Midwest markets have attracted the lion’s share of commercial real estate investment in recent years, with no signs of slowing in H1 2021. Sunshine and growing economies have spurred economic and population growth in these regions, with COVID-19 only accelerating the move away from primary markets. The business-friendly tax policies of many states, such as Texas, Florida, and Arizona, are also making local investments all the more attractive.
In the last few months, Crexi has observed increasing interest in Southern and Midwest metro areas from property seekers nationwide. Searches for Atlanta commercial property in Q2 2021 are already up nearly 50% from Q1 search volume, with Houston and Orlando showing 38.7% and 32.9% growth, respectively. These surges in demand-focused traffic eclipse overall increases and those of other regions on the site.
As 2021 continues, we’ll likely see persistent, diverse interest in secondary and tertiary markets. Investors and tenants will keep looking for under-exposed markets that have proven resilience in a post-pandemic economy.
Transactions are happening faster, spurred by digital adoption.
The widespread adoption of proptech has also smoothed out time-extending wrinkles in the transaction process. This improved facility, combined with returning overall market confidence, has resulted in a noticeable decline in the average days on the market for properties on Crexi.
A sharp rise in average time on the market coincided with the three-month freeze at the start of the pandemic, reaching a peak in Q3 of 2020 as investors waited to observe the fallout of early shutdown measures. Since Q3 2020, the average time on the market has decreased 13.1% across asset classes, with even more accelerated adoption emerging in Q1 to Q2 of this year.
Diving into specific asset classes, all property types except for retail have exceeded their pre-pandemic transaction speed. Multifamily assets, in particular, indicated the sharpest decline in days-on-market, reducing average close times by 16.75% from Q4 2021 to Q1 2021. These increased speeds point to improved market outlook and a heightened adoption of digital tools to close deals in a more timely manner.
With increased market confidence, values are going up.
Investors and landlords alike are optimistic about the future of commercial real estate, despite conflicting expert opinions on exactly how long recovery will take. Crexi data points to increased market confidence, as asking prices for sale and lease indicate consecutive gains in the first half of 2021.
Except for a February decline, each month of 2021 has reported positive growth in asking price per square foot across asset classes. More assuringly, early Q2 2021 data shows nearly 27% price increases year-over-year metrics from the pandemic’s start. Average Q2 2021 asking rates have stayed more stable on the leasing side of Crexi’s platform, still reporting a 5% increase from last year’s numbers.
Increased occupancy levels in the first half of the year also point to imminent market recovery and rising property values. On Crexi, average occupancy rates are steadily climbing towards pre-pandemic levels, reaching 82.91% in May — 6.73% from September 2020 lows.
Changes to the commercial real estate landscape are certainly still on the horizon. Companies are figuring out their spacing needs, whether opting for full or partially remote or adopting a hub-and-spoke strategy of more, smaller offices. Retail is primed for a resurgence, as experiential footprints integrate more effectively with e-commerce sites. How quickly these integrations occur remains to be seen. Despite the hazy times that still lie ahead, most COVID-induced uncertainty seems at investors’ backs as they charge full steam ahead into the second half of 2021.
