Omicron may have taken the wind out of the sails of office brokers, but in Q4 2021, SIORs’ outlook on the foreseeable future state of the commercial real estate industry remained mostly positive. There was still a divide between the level of optimism held by industrial brokers and that of office brokers, according to the SIOR Snapshot Sentiment Report for that period, but the two sectors were beginning to experience a convergence.
For industrial specialists, vacancies remains at an all-time low, causing record-breaking asking rents and great seller and landlord conditions. There’s a collective desire, the report says, to “make hay while the sun shines.”
Meanwhile, office specialists say they’re seeing declining vacancies and higher asking rents. According to the report, tenants have been attracted by concessions and by spaces retrofitted for health and safety.
Below are highlights from SIOR’s report on the current state of the industry:
- Combined confidence for industrial and office improved at the end of 2021, with a 7.7 average level of confidence (out of 10). This is the highest overall confidence reported since Q2 2020.
- Industrial market confidence also reached its highest level, rising to 8.2 in Q4 2021.
- Office regained some of the confidence lost in Q3, increasing from 6.2 to 6.4, making it the second highest confidence level since the start of the pandemic.
- The status of transactions remained mostly unchanged in Q4 2021, with SIORs reporting 81% of deals staying on schedule (a 1% dip from Q3). On-hold transactions held steady at 12%, and cancelled transactions increased from 6% to 7%.
- Overall, economic conditions have continued to positively impact performance in all markets, but not equally for both sectors.
- An overall 71% reported a positive impact from local conditions, up from 69% in Q3. That’s the highest level since the pandemic began and also nearly matches conditions reported in Q4 2019. The industrial sector is responsible for the growth, averaging a positive impact of 82%, up from 79% last quarter. Meanwhile the office sector dipped one percentage point to an average 46% feeling positive about conditions.
- Leasing activity slightly dropped in Q4 2021, with 74% reporting a little higher or much higher activity. Leasing is still vastly improved compared to a year ago, when only 29% reported higher activity.
- Overall asking rents rose 11% in Q4, with 83% reporting higher asking rents. This brings asking rents close to pre-pandemic levels (87% in Q4 2019).
- Available vacancy has hit its lowest levels in years, with 73% reporting low available vacancy (up from 68% in Q3 2021). These levels haven’t been seen since Q2 2018, (when low available vacancy was 74%). Only 14% report high vacancy, down from 19% in Q3 2021.