Optimistic Commercial Real Estate Outlook Varies by Sector

Commercial real estate executives have an optimistic but staggered outlook for the next 12 months, reported Transwestern, Houston.

The bi-annual Transwestern Commercial Real Estate Market Sentiment Survey interviewed 33 brokers and analysts. Respondents said they expect the industrial and medical office sectors to see continued growth and noted market expectations have improved for the office and retail sectors, both of which suffered during the pandemic.

“The commercial real estate recovery will be staggered, especially for office and retail due to the continued unpredictability of COVID-19 mutations,” said Elizabeth Norton, Senior Managing Director of Research Services with Transwestern. “However, we believe office tenants will begin to come off the sidelines in the coming months as several tenants who pushed the pause button will need to make a lease decision. Office construction is slowing and landlords are holding asking rents relatively steady, so organizations that are growing or simply looking to upgrade space may choose to explore what’s available and potentially lock in favorable concessions.”

Norton said the U.S. office market index averaged 103.5, well above the 61.8 registered one year ago but slightly below the 106.9 figure seen at year-end 2019.

“Results predict an uptick in leasing and walkthroughs over the next 12 months, as well as flat asking rents and higher concession packages,” the report said. “Safety and public transportation concerns fueled interest in relocating to the suburbs; however, it’s expected that demand will shift back to central business districts post-pandemic.”

The U.S. medical office index averaged 137.7 after falling to 90.1 a year ago from 106.9 at year-end 2019. Though post-pandemic recovery demand could amplify the demand for medical office product, some brokers and analysts expressed concern that rising construction costs and lack of inventory will cause tenants to consider alternative spaces.

The U.S. industrial market index reached 150.6, up significantly from the 104.4 figure seen a year ago and 116.2 at year-end 2019. “Leasing velocity and tenant prospects are expected to rise over the next 12 months with distribution and logistics companies leading the way,” Transwestern said. “The high demand and low supply of quality product is expected to result in increased asking rents and a slight decrease in concessions.”

The U.S. retail index improved to 120.3 from 52.1 a year ago and 95.8 at year-end 2019. Analysts said they expect to see increased retail, travel and leisure spending as consumers have more disposable income available.