The recovery in the commercial real estate market that started in the second half of 2021 is continuing into the first month of 2022. All core commercial sectors―multifamily, office, industrial, and retail ―experienced net positive absorption during last quarter of 2021 through January. As such, rents continue to rise and vacancy rates continue to trending downwards except in the office market.
In the multifamily market, the asking rents rose at an average year-over-year rate of 11.3% in the past 12 months as of January . Asking rents for industrial properties also continued to rise steeply at 8.9%. Asking rents for retail properties were also up over the past 12 months by 3.5% on average. In the office property market, asking rents are up on average by 1% year-over-year in the past 12 months, weighed down by declining rents in a few markets in major metro areas of New York, Washington DC, and San Francisco. However, office rents are rising in nearly all markets.
The office property market continues to grapple with an elevated vacancy rate of 12.4%. But in the multifamily, industrial, and retail property market, vacancy rates are hovering at below 5%, with the lowest vacancy rate in the industrial market at 4.4%. In the hotel sector, the occupancy rate rose to 58% in December 2021, up from 42% one year ago.
While demand for multifamily units is strong, absorption appears to have started to wane. In the 12 months ended January 26, net absorption was at 600,251 units, a slower pace compared to the 12-month absorption of 709,000. Demand could be waning due to the sharp uptick in asking rents. Additionally, renters who left their apartments in the wake of the pandemic have already moved back, while many workers are back to the office. According to the US Census Bureau, just 19% of workers in management/professional/administrative office support worked from home during the work in December 2021, down from 54% in May 2020.
Developers continue to bet their dollars on the primary markets of New York, Washington DC, Boston, Chicago, Los Angeles and San Francisco, given the construction activity in these markets. However, construction activity across multifamily, office, industrial, and retail markets is more intensely happening in the metro areas of Florida, South Carolina, North Carolina, Georgia, Alabama, Texas, Tennessee, Texas, and Arizona, Utah, Idaho, and Washington. Not a surprise as employment is growing fast in these areas and given the net domestic migration in many of these states.
This month’s issue also includes the results of NAR’s Quarterly Market Survey that asks REALTORS® what they are observing in their markets relative to pre-pandemic conditions. The 2021 Q4 survey reveals fewer tenants with missed rents, a majority of companies offering hybrid work schedules, companies moving into smaller offices, shorter term leases, investments in workplace sanitation, and more conversion of vacant malls. Among the respondents, 63% reported that they are seeing more companies leasing smaller offices, 57% reported they are seeing more short-term leases of two years or less, and 58% reported they are seeing more conversions of vacant retail malls for other uses.