Market Trends

Market Trends

Large Companies Expect Office Portfolios to Shrink

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As workers return to office spaces across the country, companies — large and small — must navigate a new leasing environment with different demands and requirements. More than four out of five large firms (those with more than 10,000 employees) are expecting to reduce the amount of leased office space in the coming years, according to a recent survey from CBRE. But when it comes to smaller employers, 40 percent of companies surveyed expect to increase office holdings in the near future, compared to 27 percent that indicated they will decrease.

As for achieving a “normal state of activity,” large employers expect to reach this somewhat subjective benchmark in 3Q2021 (52 percent) or 4Q2021 (35 percent). While zero large firms claim to be at such a point now, 39 percent of small companies — and 18 percent of medium-sized employers — have returned to “normal.”

Looking for Cheap Land? Go West

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Migration within the U.S. has trended toward the South and West for years, with the Sun Belt proving especially popular. But considering the booming housing market, Arizona is the most affordable state in the U.S. for those who might be looking for undeveloped land with homesites, according to IMA Research. The median price per acre in Arizona is $4,164, with New Mexico coming in at No. 2 at $6,000. The median price per acre of land designated as a homesite in Arizona is also the lowest in the nation, at $3,920, with Colorado following at $5,039. 

In IMA’s rankings of the best states for homesites in 2021, Arizona topped the list, followed by North Carolina, Louisiana, Tennessee, and Florida. On the other side of the ledger, Rhode Island ($350,374 median price per acre) proved to be the most expensive state for such land, followed by Massachusetts ($333,250) and Connecticut ($282,925).

Back in the Black: Mall Traffic Tops Pre-COVID-19 Levels

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The obituary for the American shopping mall has been written and rewritten for at least a decade, but new data from Placer.ai shows foot traffic in these centers finally surpassed pre-COVID-19 levels in July. Collecting data from 100 outdoor shopping centers and 100 indoor malls, researchers found year-over-two-year visits increased by 0.7 percent in July — with many expecting the trend to continue through the end of the year thanks to back-to-school shopping and the holiday season.

Unsurprisingly, outdoor shopping centers have had more success in mitigating the effects of COVID-19, considering the public health advantages offered by open-air settings. After hitting a low in year-over-two-year traffic at -19.9 percent in February, outdoor shopping centers saw that figure get out of the red with growth of 2.1 percent in July 2021. Indoor malls saw some improvement from February (-28.7 percent) to July (-0.1 percent).

Hotel CMBS Delinquencies Continue to Drop

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Thanks to nearly $1 billion in loan resolutions, the hospitality sector saw a steep decline in its CMBS delinquency rate from 15.3 percent in June to 13.61 percent in July, according to Fitch Ratings. Hotels accounted for $958 million of the total $1.7 billion in resolution volume for the month, with retail finishing in a distant second with $524 million. That eye-catching total was boosted primarily by the the $231 million Hammons Hotel Portfolio loan becoming current.

“The ongoing vaccine rollout portends a rise in both leisure travel and a widespread return of commercial activity, both of which will have a positive net effect on CMBS,” says Fitch Ratings Senior Director Karen Trebach.

Hotel CMBS delinquencies have steadily decreased since spiking to 18.38 percent in December 2020. That COVID-19-related high was still slightly below the 21.31 percent delinquency rate in September 2010 in the wake of the Great Recession.

Supply of New Apartments Hits 20-Year High

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In 2H2020 and 1H2021, approximately 363,000 new rental units were completed — representing the largest number of completions in a four-quarter stretch in at least 20 years — according to Marcus & Millichap’s 2021 midyear multifamily outlook. Dallas-Fort Worth saw the largest bump in supply, adding 27,700 apartments, with Houston (20,200) representing the only other metro area to top 20,000 units. Austin, Texas; Washington, D.C.; New York; Atlanta; Phoenix; and Charlotte, N.C., also reported robust supply in the past four quarters ending in mid-2021.

Other key findings in the report include:

  • Vacancies in major downtown areas have started to decline after rising in 2020. The vacancy rate peaked at 6.3 percent toward the end of 2020, before declining to 5.2 percent in June 2021.
  • Rents are expected to increase to an average of $1,507 per month by the end of 2021, a year-over-year increase of 6.8 percent. 

Developer Plans for 3,200-Acre Mixed-Use Texas Boom Town

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The housing market remains as hot as Dallas on an August afternoon. In response, Centurion American Development Group plans to build a 3,200-acre community in Celina, Texas, that will include 7,000 homes, 4,100 apartments, a 27-acre sports park, 24 acres of land for school development, and retail and commercial properties. The Legacy Hills project is a massive expansion for the town with a current population around 30,000. Located just over 40 miles north of Dallas, Celina is a natural spot for commuters and those looking to move farther out from densely populated areas of Dallas-Fort Worth.

Celina is a modern boom town that has tripled in size from a population of 10,000 in 2010. With the city issuing 1,672 building permits in the first half of 2021, municipal officials may be reasonable in projecting an eventual buildout population of 378,000. In addition to Legacy Hills, at least four other significant developments are planned for Celina in coming years.

Global Logistics Market Sees Bright Future

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The U.S. industrial sector has been a bright spot in commercial real estate. The global logistics market is also in a relatively strong position, according to JLL’s “The Future of Global Logistics Real Estate” survey, which included a poll of 720 experts in 43 countries. Some 74 percent of respondents expect growth to top 5 percent in the next three years, with 28 percent of respondents expecting growth to top 20 percent in that time frame.

Despite the positive outlook for logistics and warehouse real estate, 43 percent of survey respondents identified limited availability of entitled land as a primary concern in meeting demand. Lack of available speculative buildings was another concern. Respondents from Northern (75 percent) and Western Europe (46 percent) were the most likely to agree that “most occupiers are taking limited action on sustainability, but some are taking significant action,” while East Asia (7 percent) and Latin America (18 percent) were the least likely to agree.

Data Centers Could See Boost from Infrastructure Bill

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In late July, the Senate passed a $1.2 trillion infrastructure bill that will have major consequences for commercial real estate, with data centers being one area that attracts increased attention. (Note: The bipartisan legislation still needs to go through House reconciliation and could change, though many observers expect alterations to be relatively minor.) The Infrastructure Investment and Jobs Act includes $65 billion marked to support broadband deployment and adoption, which would boost demand for data centers across the country.

The bulk of the federal funds ($42 billion) are a part of the Broadband Equity, Access, and Deployment Program, which would provide states with grants for the development of broadband infrastructure, mapping, and adoption. In simple terms, more people using the internet means greater need for data centers, which could prove a boon for commercial real estate professionals working in the specialty.

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