Commercial Market and Research Projects Update: Tracking the Pandemic’s Impact
Commercial Real Estate Research Advisory Board NAR Conference and Expo November 6, 2020 | 10:00 – 11:00 am
Gay Cororaton Senior Economist, Director of Housing and Commercial Research [email protected] NAR New Research! Commercial Market Insights Reports https://www.nar.realtor/commercial-market-insights Commercial Real Estate Trends & Outlook Report ▪ https://www.nar.realtor/commercial-real-estate-market-trends-and-outlook Commercial Sales Transactions Contracting at a Slower Pace in 2020 Q3
Quarterly Commercial Sales Quarterly Sales Volume Transactions of $2.5M or Over (YoY % Chg) $200 REALTOR® CRE Markets $180 $2.5+M Market
$160 150% Billions $140 100% $120 $100 50% -3% $80 -5% $68.44 0% $60 -57% $40 $49.94 -50% -68% $20 -100%
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2011
2017
2014
2013
2015
2012
2016 2019
2018
2010
2009
11Q3 13Q1
19Q1
16Q1
01Q1 10Q1
17Q3
14Q3
07Q1
04Q1
05Q3
02Q3 20Q3
08Q3
2020.Q1 2020.Q3 Sources: National Association of REALTORS®, Real Capital Analytics2020.Q2 Stronger Pickup in Sales of Garden Apartments than Mid-High Rises in 2020 Q3
Sales Transactions of $2.5M or Over Garden Mid/Highrise $40 $35
Billions $30 $25 $20 $16 $15 $10 $8 $5
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03… 05…
02…
06… 09…
08…
13Q1 11Q3
19Q1
16Q1
01Q1 10Q1
17Q3
13Q4 14Q3
15Q2
12Q2
19Q4
16Q4
18Q2
07Q1
01Q4 04Q1 10Q4
07Q4 04Q4
Multifamily apartment buildings that are three floors or less. Multifamily apartment buildings that are four floors or more. Slight Recovery in Suburban Office Sales But Continued Decline in CBD Sales in 2020 Q3 Sales Transactions of $2.5M or Over Office - CBD Office - Sub $45 $40
Billions $35 $30 $25 $20 $15 $10 $5
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11Q3 13Q1
16Q1 19Q1
01Q1 10Q1
17Q3
13Q4 14Q3
15Q2
12Q2
19Q4
16Q4
18Q2
07Q1
01Q4 04Q1 10Q4
07Q4
04Q4
05Q3
02Q3 03Q2 20Q3
09Q2
06Q2 08Q3 Slight Uptick in Sales of Industrial Warehouse and Flex Properties in 2020 Q3
Sales Transactions of $2.5M of Over Flex Warehouse $40
$35 Billions $30
$25
$20
$15 $11 $10
$5 $4
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11Q3 13Q1
19Q1
16Q1
01Q1 10Q1
17Q3
13Q4 14Q3
15Q2
12Q2
19Q4
16Q4
18Q2
07Q1
01Q4 04Q1 10Q4
07Q4
04Q4
05Q3
02Q3 03Q2 20Q3
06Q2 09Q2 08Q3 Slight Uptick in Sales of Retail Shops and Centers in 2020 Q3
Sales Transactions of $2.5M of Over Shops Centers $30
$25 Billions
$20
$15
$10
$5
$-
11Q3 13Q1
19Q1
16Q1
01Q1 10Q1
17Q3
13Q4 14Q3
15Q2
12Q2
16Q4 19Q4
18Q2
07Q1
01Q4 04Q1 10Q4
07Q4
04Q4
05Q3
02Q3 03Q2 20Q3
09Q2
06Q2 08Q3
Retail space usually occupied by a single tenant and/or under 30,000 square feet/2,787 square meters. Retail space consisting of multiple tenants and 30,000 square feet or more. REALTORS® Report Smaller Contraction in Sales Except Land and Industrial
Y/Y % Chg. In Sales of REALTOR® Respondents 2020.Q2 2020.Q3
0% -1% 0% 0% -1% -1% -1% -2% -2% -3% -4% -4% -3% -5% -4% -6% -5% -5% -7% -7% -8% NAR Commercial Real Estate Quarterly Market Survey REALTORS® Reported More Residential, Recreational, and Industrial Land Sales (among respondents who had any land transaction*
Land Sales of REALTORS® in 2020 Q3 by Property Type (YoY % Chg) 2020.Q2 2020.Q3 7% 6% 6% 5% 5% 4% 4% 3% 3% 3% 3% 2% 1% 1% 2% 2% 1% 0% -1% -2% -3% -3%
* A transaction where land accounts for 51% or more of the value of the transaction REALTORS® Reported a Decline in Leasing Volume Except for Industrial Space
Leasing Volume pe (YoY % Chg) 2020.Q2 2020.Q3
2% 0.2% 0.4% 0% -2% -2% -2% -2% -4% -4% -6% -5% -4% -8% -10% -9% -12%
Source: Cushman and Wakefield (office, retail, industrial) and US Census Bureau (multifamily) Major Cities Suffer Biggest Loss of Office Occupancy Net Absorption Office Space in 2020 Q2-Q3 (7,666,790) New York (6,392,530) San Francisco (4,208,243) Los Angeles (3,884,791) Dallas (3,123,938) Boston (2,960,188) Houston (2,149,715) Oakland/East Bay (2,116,821) Austin (2,071,346) Denver (1,977,569) Phoenix (1,904,593) New Jersey (1,634,955) Seattle (1,557,559) San Jose (1,222,742) Chicago (1,059,676) Atlanta (573,095) Washington DC (542,950) Rochester NY (51,067) Roanoke (17,778) Philadelphia (193) Indianapolis 59,711 Raleigh 93,725 Minneapolis 254,534 Boise Source: Cushman and Wakefield Biggest Gainers of Industrial Space Occupancy
Net Absorption of Industrial Space in 2020 Q2-Q3
PA I-81/I-78 Distribution Corridor 14,165,948 Inland Empire 11,714,006 Dallas Fort Worth 11,271,338 Chicago 8,402,463 Houston 7,035,498 Atlanta 6,018,101 Phoenix 5,737,080 New Jersey Central and Northern 5,407,574 Indianapolis 5,226,025 Columbus, OH 4,114,429 Kansas 4,094,003 Louisville 4,081,588 Savannah 3,876,049 Nashsville 3,289,598 Salt Lake City 2,047,512 Orlando 1,899,168 0 5,000,000 10,000,000 15,000,000
Source: Cushman and Wakefield Higher Vacancy Rates Across All Property Types Except in Industrial Sector
Vacancy Rates
14.40% 13.70%
7.10% 6.80% 6.40% 5.30%5.30% 5.70%
Office Retail Industrial Multifamily
2020 Q2 2020 Q3
Source: Cushman and Wakefield (office, retail, industrial) and US Census Bureau (multifamily) Impact of Covid-19 Pandemic
Percent of respondents What changes are you seeing in the following areas relative to January 2020 (pre-coronavirus who answered condition)? "More"
2020.Q3 Working from home/alternating/staggered office work schedules 83% Investment in workspace redesigns to increase sanitation, hygiene, and social distancing (plexiglass, cubicles, air filtration,etc.) 76% Tenants with rent concessions 65% Companies leasing or moving into offices with smaller square footage due to working from home 62% Companies that pay for expenses related to working -from-home (broadband internet, office supplies, etc.) 60% Short-term office leases or use service agreements (2 years or less ) 59% Tenants with missed, late, or partial office, retail, or industrial space rent payments 54% Tenants with missed, late, or partial multifamily residential rent payments 53% Repurposing of vacant malls 52% Demand for flexible/co-working office space from individuals (gig workers, independent contractors, etc.) 51% Companies obtaining business interruption insurance 50% Headquarters with satellite offices 48% Use of work data analytics to track mobility and use of office spaces 45% Sales or leasing transactions in suburban area vs. central business district 43% Demand for flexible/co-working office space from enterprise clients/large firms 43% Offices being charged higher common area maintenance expenses related to safely and sanitation measures 42% Co-tenancy clauses for retail properties 37% Companies that offer transportation services/shuttles for their workers 21% Source: 2020 Q3 Commercial Real Estate Market Survey Decline in Common Area Maintenance Expenses from One Year Ago Y/Y Percent Increase in Common Area Maintenance Fees in 2020 Q3
-0.1% Industrial: Warehouse
-0.2% Industrial: Flex
-0.2% Retail: Mall
-0.2% Retail: Free-standing
-0.2% Office Class A
-0.3% Apartment Class A
-0.3% Apartment Class B/C
-0.3% Office Class B/C
-0.3% Retail: Strip Center
Source: 2020 Q3 Commercial Real Estate Market Survey On Average, REALTORS® Reported Little Difference Between Appraisal Values and REALTORS® Assessment of Property Values Average Difference Between Lender Appaisal Values and REALTORS® Assessment of Market Values
0.0% -0.1% 0.0% -0.1% -0.1% -0.1%
-0.2% -0.2% -0.2% -0.3% -0.3% -0.3% Source: 2020 Q3 Commercial Real Estate Market Survey How Vacant Malls are Being Repurposed How are vacant malls being repurposed in your market? Select all that apply.
Mixed-use (residential , retail, office) 38.35% Industrial use: Distribution/fulfillment center 23.49% Health care/hospital/medical 20.73% Church 20.37% Office space 17.43% Self-storage 16.15% Multifamily/residential 10.83% College/university office 8.81% Government building (office, police precinct) 6.97% Health armory 4.04% Sports stadium 2.20% Other 24.77%
Source: 2020 Q3 Commercial Real Estate Market Survey New Research: Metro/City Data Report
❖ NAR Research acquired Cushman and Wakefield metro-level market office and industrial data on Inventory, absorption, vacancy rates, leasing volume, and rent
>> COMMERCIAL MARKET REPORTS showing economic and commercial statistics (quarterly)
❖ NAR Research is working with Data Science Team to generate metro-level leasing and sales data from RPR (especially on retail) to supplement Cushman and Wakefield office and industrial data