January 2021 Commercial Real Estate Market Trends and Outlook

This report is based on information collected from NAR's 2020 Q4 Commercial Real Estate Quarterly Market Survey of its members who are primarily engaged in commercial transactions. The 2020 Q4 Commercial Real Estate Quarterly Market Survey of REALTORS® reveals that the commercial real estate market continues to recover, but sales, leasing, and construction activity remain below year-ago levels. The recovery also remains uneven, with stronger investor interest for land, multifamily, and industrial properties than for hotels, retail, and office properties. REALTORS® are typically engaged in the small commercial market (properties valued at less than $2.5 million).

On a year-over-year basis, sales declined by 1% in the fourth quarter of 2020 (5% in the second quarter). Leasing volume fell by 1% (4% in the second quarter). Construction activity among REALTORS® was down by 3% (6% in the second quarter). The risk spread (cap rates less 10-year T-bond) remains elevated at 6% compared to 4% prior to the pandemic.

Line and bar graph: Year-Over-Year Change in Commercial Sales Volume, 2018 to Q4 2020
Bar graph: Year-Over-Year Percent Change in Leasing Volume in Q4 2020 by Property Type

For the first quarter of 2021, REALTORS® expect an increase in sales of land (5% y/y), industrial (3% y/y) and multifamily (2% y/y) properties. Regarding the land market, the properties with the strongest expected increase in sales are residential land (7% y/y), industrial land (5% y/y), and ranch lands (5% y/y).

REALTORS® expect vacancy rates to hover at about 5% among multifamily and industrial properties, at 10% for retail properties, at 12% for office properties, and 50% for hotel/hospitality properties.

REALTORS® expect commercial prices to increase in 2021 Q1 for multifamily properties (+1% y/y), industrial (2% y/y), and land assets (3% y/y), and to decrease in the office market (-3% y/y), retail (-6% y/y), and hotel/hospitality (-6% y/y).

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