The worst days of CRE may be over, but “we are not out of the woods”

The worst of the COVID crisis could be in the rearview mirror for the commercial real estate market, according to an industry insider.

“I still think the worst is behind us and the commercial real estate market is getting stronger,” Marcus & Millichap’s John Chang said in a recent video. “But we’re not out of the woods yet.”

The apartment sector had a strong second quarter, Chang said, with net absorption of 218,000 units.strongest quarterly absorption on record since 1993. Quarter-over-quarter rental growth was 4.1%, the largest gain since the dot-com boom, and the vacancy rate fell 3.8 basis points nationwide.

“The strong quarterly results reflect the liberation from the formation of refouled households and a widespread housing shortage,” he said. “At first glance, the shortage is likely to become even more acute over the next two years, supporting strong performance momentum for apartments. “

The industrial vacancy rate fell 30 basis points to 5% in the second quarter, despite the addition of 60 million square feet of space. Chang also plans more than 300 million square feet of industrial completions this year.a figure that is tempered by the more than 100 million square feet of absorption during the quarter.

The outlook for industrial demand remains strong, Chang said, but another important consideration is safeguarding the supply chain, which suggests companies will try to stock up for the holiday season. This will stimulate demand based on warehouses.

Retail is “a little trickier,” Chang says. “Many retailers have gone out of business during the pandemic, but we haven’t seen the expected dramatic surge in vacancies. Yes, vacancies increased by around 70 basis points last year… but it’s pretty quiet compared to the 170 basis point increase during the financial crisis.

The limited pace of retail construction contributed to performance, as did adaptive reuse in the industry. Overall, the sector held up “better than expected”, with average rents making their first real gain in over a year.

The office market is also slowly improving, with barely positive absorption in Q2. Since the start of the pandemic, tenants have returned approximately 200 million square feet and the current office vacancy rate stands at 16.2%, matching the peak of the financial crisis.

“We’ll have to see how effective companies are at bringing their workforce back to the office before we get a real idea of ​​the outlook for the office market, but it looks like the worst is behind us,” he said. he declares.

Headwinds could appearprobably due to the Delta variant. States with the highest infection rates are the least likely to implement lockdowns, Chang said, but “a growing increase in infections could slow the return to work in the office.”

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