The good news: A number of metropolitan areas across the U.S. will see a solid rebound in the commercial-real-estate sector over the coming year, according to a new report by the National Association of Realtors (NAR).
The not-so-good news: The Washington region is not near the top of the ranking
The trade organization has released its list of top 10 commercial markets for the coming year, with most of them concentrated in the South and the West.
“The top commercial real estate markets that are expected to outperform the rest of the nation are generally affordable and able to draw new residents with a greater flexibility to work from home,” said NAR’s chief economist Lawrence Yun. “These growing markets also offer much lower office and retail rents and are, therefore, able to attract new and expanding businesses.”
In alphabetical order, the metro areas expected to be tops for 2021 are Austin-Round Rock (Texas); Cape Coral-Fort Myers (Fla.); Las Vegas; Nashville; Charleston, S.C.; Phoenix; Raleigh, N.C.; Salt Lake City; Seattle; and Tucson, Ariz.
NAR selected the top 10 markets after considering 25 indicators on an area’s economic, demographic, housing and commercial market conditions in the multifamily, office, industrial, retail and hotel property sectors.
Some of the indicators included economic growth, unemployment rate, median household income, consumer spending, number of business openings, population growth, home-ownership rate, rental vacancy rate, building permits and apartment rent.
NAR unveiled the top commercial markets during its first-ever Commercial Real Estate Forecast Summit. The event featured a panel of leading economists who discussed the pandemic’s impact on commercial real estate, including the multi-family, office, retail and industrial sectors, as well as real estate investment trusts, or REITs.
Yun predicted that the U.S. economy will continue to improve in 2021, and expects the commercial real estate market will follow.
“A recovering economy and the near certain job growth will steadily lead to the absorption of commercial properties,” Yun said. “The apartment-rentals market could once again experience very low vacancy rates by year’s end.”
Calvin Schnure, Nareit’s senior vice president of research and economic analysis, said REITs have performed well overall in spite of COVID, although some variance exists depending on the market segment.
“The impact of the pandemic on commercial real estate varies widely across property types,” Schnure said. “REITs have been resilient due to their strong balance sheets and liquidity and solid operating fundamentals when the crisis erupted.
“Some sectors have been harder hit, especially lodging, resorts and retail REITs, while sectors that support the digital economy – including data centers, cell towers and industrial and logistics facilities – have enjoyed a surge in demand,” he said.
Gay Cororaton, NAR’s senior economist and director of housing and commercial research, anticipates the multi-family, industrial and retail sectors will drive the commercial real estate recovery this year, but says it may take longer for office occupancies to reach pre-pandemic levels.
“Multi-family and industrial remain the commercial market’s bright spots,” Cororaton said. “With wide differences in commercial and apartment rents across metro areas, development will turn to less expensive markets that are closer to the gateway cities.”
“However, office vacancy rates will remain elevated, even with full office-job recovery by the middle of 2022, due to some shifting toward a nationwide work-from-home culture,” he predicted.
“I expect continued retailer fallout,” added Brandon Hardin, NAR’s research economist. “And as tactical store closures and bankruptcies increase, adaptive reuse and conversions will create opportunities for investors and developers.”
The report is available at www.nar.realtor/research-and-statistics/research-reports/commercial-real-estate-local-market-reports.