January 2022 Commercial Real Estate Market Insights

Commercial Real Estate Market Overview

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. All commercial sectors experienced net positive absorption as of a three month period ending in January.

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.

Line and bar graphs: Positive Net Absorption in All Commercial Sectors, Q2 2011 to January 2022

Multifamily Properties

In the multifamily apartment market, 76,170 units were absorbed on a net basis in the past three months as of January 26, a level that is in line with historical levels, but a slower pace compared to 2020-2021. About 1 million apartment units have been absorbed from 2020 Q2 through 2021 Q4, bringing the vacancy rate down to 4.9% from 6.7% in 2020 Q1.

Line graph: 12-month Net Absorption of Multifamily Units by Class, Q2 2011 to Q2 2021

Office Properties

In the office market, 10.2 million square feet of office space was absorbed on a net basis in the past three months ending January 26. With workers heading back to the office, occupancy has increased since 2021 Q3. However, there is still 117 million square feet of office space returned to the market since 2020 Q2 through 2021 Q4. The vacancy rate has increased to 12.4% as of 2021 Q4 from 9.7% in 2020 Q1.

Line graph: Quarterly Office Absorption by Class, Q1 2019 to Q1 2022

Industrial Properties

In the industrial market, 96.8 million square feet of office space was absorbed in the past three months ending January 26, with 684 million square feet of space absorbed since 2020 Q2 through 2021 Q4. The industrial sector has the lowest vacancy rate among the core property markets, at 4.4%, from 5.3% in 2020 Q1.

Line graph: Industrial Demand: Net Absorption, Q1 2012 to Q3 2021

Retail Properties

In the retail property market, 28.5 million square feet absorbed in the past three months ending January 26, with a net absorption of 50 million square feet since 2020 Q2 through 2021 Q4. The vacancy rate is at 4.6%.

Line graph: Retail Demand: Net Absorption, Q1 2012 to Q4 2021

Hotel Properties

With the progress on vaccination and the uptick in business and personal travel, hotel occupancy improved to 57.9% in December compared to the 3-month occupancy rate of 42% one year ago. The hotel industry's revenue metrics― average daily rate (ADR) and revenue per available room (RevPAR) ― also improved. RevPAR rose to $77, or double the $39/room rate one year ago while the ADR rose to $133 from $94 one year ago.

The highest occupancy rates are in Portland (Maine), Southern Louisiana, Allenton/Reading, Gatlinburg, California, and Richmond, with hotel occupancy rates of at least 70%.

Line graph: 3-month Hotel Occupancy Rate as of December 2021

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