Lee & Associates 2021 Q3 North America Market Report

INDUSTRIAL OVERVIEW: Q3 POSTS MORE RECORD DEMAND

Pandemic-fueled consumer spending drove up third-quarter demand for warehouse and distribution facilities that eclipsed previous records. And despite a nationwide surge in new construction, some metros can barely accommodate the pace of tenant expansion.  Additionally, year-over-year rent growth is at a record 6.7% for the industrial property sector as a whole and 7.9% for logistics facilities.  The national vacancy rate fell at the fastest pace ever in Q3, settling at a record low 4.6%.  Net absorption in the third quarter totaled 157.9 million SF, a 17.2% increase over Q2’s record-setting net growth of 134.7 million SF.  Net absorption through the first three quarters of 2021 totaled 366.5 million SF. The previous record was 278.7 million SF set in 2016.  It’s also notable that net absorption already has exceeded the record 342.9 million SF of new deliveries expected this year.

It is a dramatic turnaround from 18 months ago when the lockdown put the brakes on an economy that since came roaring back with the help of government relief and vaccine distribution. The pandemic accelerated the growth of e-commerce to levels exceeding existing supply-chain capacities. At the moment new listings for quality space are attracting multiple offers in many major industrial markets. And in some prime industrial neighborhoods any space with a loading dock and 18 feet of clear height excites user interest. READ MORE >

OFFICE OVERVIEW: POSITIVE DEMAND RETURNS

The nation’s office market posted positive net absorption in the third quarter. It was the first quarter of growth since the pandemic hit.  The tenant expansion came despite spiking Covid Delta infections that began in early July, renewing employer caution over office re-opening plans.

Net absorption totaled 11,792,287 SF in the third quarter. But over the previous 18 months negative absorption totaled 131 million SF, which accounts for 1.6% of the 8.2-billion-SF inventory.  It also is equal to two years of growth in a strong pre-Covid economy, during which the five-year absorption average was 65.5 million SF per year.  Construction starts since the lockdown are less than 15 million SF.  But over the last two years 92 million SF emerged from the construction pipeline. The new space represents 1.2% of total inventory.

Markets with the most supply underway were Austin, San Jose, San Francisco and Seattle. Nashville, Charlotte and Miami are among Sun Belt metros set to add significant space, much of which has not been pre-leased. This adds to concern in markets where sublease space is at record levels.

Trailing-year rent losses currently are greatest in tech markets San Francisco, Seattle, Austin and San Jose.  Falling rent is also pronounced in New York City, Los Angeles, Chicago, Washington, D.C., and many California markets.  Markets maintaining positive rent growth include Las Vegas, the Inland Empire, Memphis, Raleigh, Charlotte, San Antonio and virtually all Florida markets.  In light of the long-term effects remote working could have on office demand and in view of the record volume of space vacated since Q1 of last year, a rebound to pre-pandemic effective rent levels could take years to achieve. READ MORE >

RETAIL OVERVIEW: RETAIL DEMAND STAGES A COMEBACK

Retail real estate is staging a notable comeback in 2021 bolstered by enormous government subsidies to consumers who largely are getting vaccinated. While there was a sharp increase in e-commerce in 2020, this year has been brick-and-mortar’s turn.   Merchants expanded their real estate footprints again in the third quarter by 28.6 million SF. This follows 20.2 million SF of positive net absorption in the second quarter and 4.5 million SF in Q1, and brings overall year-to-date growth to 53.3 million SF, 52% more than for all of 2019. 

The strongest growth has come in the last two quarters as vaccines became widely available, allowing workers to return to offices and benefiting bars, restaurants and apparel stores.  Earning reports show rebounding same-store sales.

In addition to the injection of more than a trillion dollars into consumers’ wallets, reopening of the economy and easing restrictions on operations also helped slow the pace of store closure announcements and bankruptcies, which are on pace to impact the least amount of space since 2016.

Many retailers are expanding into new locations with grocery, discount, home décor and beauty sectors as the most active. At the same time, the average-sized footprint continues to lessen as several merchants, such as Target, Macy’s and Burlington, are focusing on operating leaner, smaller formatted stores.  Retailers’ expansion plans continue to focus on faster-growing metros in the South and West, where absorption and leasing activity is greatest. READ MORE >

MULTIFAMILY OVERVIEW: GROWTH PRESSURES HIT RENTERS

Apartment demand is in overdrive and rents are soaring.Third-quarter absorption totaled 203,994 units, bringing the year-to-date total to 621,680. That’s a 67% increase over last year’s absorption record of 372,904 apartments. The vacancy rate for 17.8 million apartments is at an all-time low 4.6%.

At the end of the third quarter, monthly rents were up an average 10.4% this year to $1,524 per unit or $1.71 per SF.Rents were highest in San Francisco, averaging $2,964, up 10% this year.Of the top 80 U.S. metros, 17 posted annual growth rates over 15%.Austin, Jacksonville, Las Vegas, Orlando, Phoenix, Raleigh and Tampa averaged asking rent hikes of more than 20%.

Third-quarter net absorption totaled 142,274 units out of 4.8 million Class A apartments and 193,458 apartments out of 7.2 million Class B units. Dallas/Ft. Worth was No. 1 in net absorption with 46,145 units in the last 12 months.

With demand and rent growth indicators surging and values back on the rise, investors have regained confidence in the sector and sales volume has returned to more normal levels in the last few quarters.Investors are increasingly drawn to the Sunbelt markets.Third-quarter sales volume in metros like Dallas/Ft. Worth, Atlanta and Phoenix was well ahead of trading levels early this year. Transaction activity in Los Angeles, Washington, D.C., the Bay Area and New York City remained tepid. But that’s likely to change soon as each of those cities and Chicago is showing strong net absorption. READ MORE >

 

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2021 Q3 North America Market Report

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