Strong real estate markets continue to make the news. However, most of the reporting has centered around strong US single-family residential real estate. For good reason, too, as that market continues to experience historical demand. However, a bit less heralded, the US commercial real estate market has also just undergone an unprecedented year. As recently reported in the Scotsman Guide, “the prices of U.S. commercial real estate saw its largest ever year-over-year jump in October, according to Real Capital Analytics’ (RCA) latest Commercial Property Price Indices (CPPI) report. Prices jumped 15.9% year over year in October, the fastest annual pace in the history of the CPPI.”[i]
In 2020, as the US economy came to grips with unexpected business lockdowns and financial stress, most sectors of commercial real estate experienced valuation losses. Given the uncertainty as to the length and extent of the COVID financial strain, investors pulled money from commercial real estate across the board. Well, that did not last long, as investors reversed that strategy in 2021. Two sectors – multifamily property and industrial properties – in particular, experienced significant gains in 2021. From the article, “Through October, investors bought $523.8 billion in commercial property assets, up 70% from the 10-month period opening last year. More than $200 billion was spent by investors in acquiring multifamily properties through October — almost double the amount spent through the same month last year. Another $100 billion-plus was spent on industrial properties.”1
Given the nature of the pandemic lockdowns, a lot of investor uncertainty was focused on commercial office properties and retail. These two sectors would be expected to take significant hits if lockdowns and remote work situations continued indefinitely. However, these sub-classes also experienced strong gains over the past year. Still, the strong numbers are off lows experienced in 2020. As detailed in the article, “RCA’s office index was up 13.7% year over year in October, marking four consecutive months of annual growth in double-digit percentage territory. The jump in office prices have been spearheaded by suburban office properties, which saw a climb of 15.6% from October 2020. Retail, too, is continuing to improve, with October’s 14.2% year-to-year gain marking the segment’s third consecutive double-digit price increase. That annual growth rate is the retail market’s highest since before the Global Financial Crisis, RCA noted.”1
As you know, there are many sub-asset classes that make up real estate markets. The fundamentals that drive one market, such as residential housing, can be drastically different from those driving commercial markets. As a lender who is partial to and focused on investors in varied residential markets across the US, we continue to believe (and the data supports) that these markets tend to be less volatile than commercial markets. Of course, the overall economy is highly interconnected, so it’s worth noting the record-setting growth of this magnitude in commercial sub classes. Further, despite the pandemic, which has affected the economy on so many levels, such resilient real estate markets could be seen as another vote of confidence for one of the world’s best asset classes as a whole.
Chris oversees business development, investor relations, and capital partnerships. With 25 years of experience in alternative investments, Chris has raised $250 million in assets. He’s served as Chief Compliance Officer, co-managed a Fund of Funds, and worked in operations and trading. Chris has been instrumental in growing four companies. Through firms like Sapourn Financial Services, Dekker Capital Management, and Diamond Peak Capital, he’s delivered solid absolute returns across varied market cycles.