Sixty-nine percent of commercial real estate brokers say they made more money in 2021 than in 2020, according to the latest Apto National Broker Buzz Poll conducted in December 2021. They’re even more optimistic about this year.

Commercial real estate has posted a dramatic recovery ever since the beginning of the pandemic. 2021 marked a big turn for the sector, notably in the multifamily and industrial spaces, as well as a demonstrated resiliency within brick-and-mortar retail, according to the National Association of REALTORS®’ December 2021 Commercial Market Insights.

In fact, investment acquisitions helped the commercial sector in 2021 surpass pre-pandemic levels. “This strong foundation of recovery puts the commercial market on pace for sustained demand for the commercial and investor sectors in 2022,” NAR says in its report.

That’s translated into more business for commercial real estate practitioners. Sixty-six percent of brokers say they completed more transactions in 2021 than in 2020. What’s more, 60% of brokers expect 2022 to be an even better year in profitability, according to the Apto survey.

“The poll results reflect the overall economy’s strength this past year, which translated to most brokers making more money, especially those focused on industrial or multifamily real estate,” says Tanner McGraw, a former CRE broker and the founder of Apto, a commercial real estate broker software company. “But the tide is turning for retail real estate and high-quality office. As we know, brokers can do well whether owners and investors are buying or selling, or whether tenants are adding or shedding space. It’s movement that matters, and we saw considerable business activity in the economy in 2021.”

CRE Sectors to Watch

The multifamily sector, in particular, had a historic year in 2021. Vacancy rates hit a record low in December 2021 while the median asking rent growth reached a record high of 11% year over year, NAR reports. Rental demand has soared since the pandemic began as double-digit home price growth has priced out some aspiring homeowners and turned them into renters.

Further, the industrial property market posted a record year, experiencing a boon due to the continued growth in online shopping. Nearly 700 million square feet of space has been absorbed since the pandemic began, and rents have soared to record highs of 8.4%, NAR reports. Meanwhile, vacancies have fallen to all-time lows.

2022 Outlook

NAR expects demand for commercial real estate to strengthen in 2022, despite an uptick in interest rates largely expected this year. Persistent strong demand and supply will keep commercial real estate strong, NAR says.

The multifamily sector is expected to stay robust. Also, NAR researchers are optimistic about brick-and-mortar continuing to make gains as it solidifies its place in complementing online shopping fulfillment. Retail brick-and-mortar market growth is expected to be largely driven by smaller shops, such as neighborhood centers, strip centers, and single-tenant stores.

Further, the office market will likely continue to see an increase in net absorption as more workers return to the office, even if only on a hybrid work schedule.

Seventy-five percent of brokers who work in an office setting say they have returned to the office following the holidays, according to the Apto survey. “It’s nice to see brokers back in the office leading the way as real estate consumers,” McGraw adds. “The new coronavirus variant is posing a last-minute threat to office returns, but the desire and intent to be in the office is very apparent based on brokers’ response to our survey.”

Source: National Association of REALTORS®, December 2021 Commercial Market Insights

©National Association of REALTORS®
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Office buildings that are outdated or that have been left partially or completely empty since the pandemic began are being reimagined. With a surge in demand for apartments, developers are remaking some underused office buildings into new living corridors.

For example, a two-tower office building known as Park Center in Alexandria, Va., a suburb of Washington, D.C., was about one-third empty. The property—now called the Park and Ford Apartments–has been transformed into luxury apartment buildings of 435 units.

The former office complex is one of 151 office buildings, hotels, or other commercial properties converted to apartments last year, according to Yardi Matrix data.

Many of the office conversions have been of newer buildings than older ones. Overall, developers are viewing nearly 1,000 office buildings as candidates for residential conversion, The Wall Street Journal reports. These are mostly properties that have been built since 1980, span more than 100,000 square feet, and are at least 50% vacant, according to the CoStar Group.

To make the former office buildings more livable, developers are adding outdoor gathering spots, operable windows, balconies, gyms, and even co-working office spaces.

But developers say these conversions aren’t easy to do and that could limit some projects. For example, at the Park and Ford buildings, resolving the presence of mold, asbestos, and damaged concrete delayed construction and added to costs, The Wall Street Journal reports. Also, both zoning regulations and unconventional layouts can prevent some buildings from being turned into apartments.

“At a certain point, if the cost of altering a building starts approaching new construction, it really may not make any sense,” Valerie Campbell, land use attorney at the Kramer Levin firm in New York who has worked on conversions, told The Wall Street Journal.

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Lumber prices are soaring once again: Following a dip last spring and summer, they have nearly tripled over the past four months.

Builders say that increase has caused the price of an average new single-family home to rise by more than $18,600. It has also added nearly $7,300 to the price of an average new multifamily home, translating into $67 a month more in rent for a new apartment, according to the National Association of Home Builders.

Price volatility for lumber started in April 2020 when the pandemic prompted a reduction in production at sawmills. The surge in demand in the housing market with new-home construction and remodeling sparked shortages. Lumber prices reached a record of $1,500 per thousand board feet in May 2021.

Ongoing supply chain disruptions, the doubling of tariffs on Canadian lumber imports, and the wildfire season in the western United States and British Columbia have kept lumber prices high, the NAHB says. The price of framing lumber was $1,000 per thousand board feet on Dec. 29—a 167% increase since late August.

Lumber is used throughout the building process, from the structural framing, sheathing, flooring, interior walls and ceiling finishes, cabinets, doors, siding, garages, porches, railing, fences, and more.

The NAHB has been calling on lawmakers to help resolve lumber pricing and other building material supply chain disruptions that are raising construction costs and hampering housing affordability.

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Reprinted with permission

Supply chain backups for materials continue to hit the new-home market and are causing some new owners to have to move into unfinished homes, The Wall Street Journal reports.

The problems stem from ongoing factory closures caused by the pandemic, transportation delays, and port capacity limits. The shortages are especially popping up in the lack of windows, garage doors, appliances, and paint.

The shortages have been occurring since the pandemic began. Home builders say there’s been little improvement and it is still taking weeks longer than normal to finish homes because of widespread shortages.

About 90% of home builders surveyed in November 2021 said they were experiencing supply disruptions, up from 75% in January 2021, according to Zonda, a real estate research firm.

To try to help counter the delays, some builders are stocking up on products or trying to find suitable substitutes for some materials.

The builder Epcon Communities in Dublin, Ohio, said that some of their buyers moved into their new homes before gutters and downspouts were installed because of shortages. Meanwhile, city officials in Sacramento, Calif., established a policy in November 2021 that allowed builders to close on homes with temporary garage doors due to delays.

Builders with Homes by WestBay LLC in Riverview, Fla., say they’ve started ordering windows six months in advance. Prior to the supply chain issues, they could order them just 60 days ahead of time.

“About the time we’re getting ready to pave streets in a new subdivision … we’re ordering windows for 100 homes,” Willy Nunn, president and CEO of Homes by WestBay, told The Wall Street Journal. He says the homes are about a month to two months behind their normal schedule.

Materials aren’t just taking longer to arrive but are also costing more. Builders are passing along those increases mostly on to home buyers. The median price of a newly built home in November reached a record high of $416,900, nearly 19% higher than a year earlier.

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Reprinted with permission

When you hit the usual sales slump during the cold months, here’s what you can do to keep your business from freezing until spring.

It’s that time of year again when most real estate professionals are bracing for a dip in sales in the cold winter months and many home buyers and sellers go into hibernation. Even if you don’t have a lot of active clients during this time, there’s plenty you can do to keep your business from freezing while you wait for consumers to return to the market in spring.

The winter downtime is perfect for taking stock of your marketing techniques and assessing what you can do differently for your overall business. By the time you’ve identified and incorporated some changes, you’ll be ready to hit the ground running when the busy spring selling season emerges again. Here are five items to put on your winter checklist.

1. Clean up your contact list. You’ve built a healthy list of contacts who you sincerely believe will be interested in your newsletter, blog, and social media content. But it takes hard work to keep the list as clean and up-to-date as possible. Look at the bounce rates of recent messages you’ve sent to your customer base, and when possible, track down a new email address for contacts whose information is outdated. You’ll be surprised what you can learn about a client when you follow up to find out why their email address changed. You might discover, for example, that they have a new job that requires a move in the near future. Keep in mind, though, that when it comes to keeping your contact list tidy, if people unsubscribe, you should honor their request immediately.

2. Test email marketing services. There are many options out there, but a lot of practitioners still rely on their personal email addresses to send bulk messages. What you might not realize is that when you send bulk email from your personal account, those messages are more likely to get caught in spam filters. But even if your message does reach your customers, you won’t get insights into what they do once they receive it. Email marketing providers can keep track of your contact list, let you know which emails were opened and when, and tell you which articles were clicked on and shared. (Not to mention that most have a deliverability rate of more than 95 percent, meaning your message won’t get stuck in a spam filter.) So use this time to check out different services and take advantage of a free trial. Find what works for you now, and by the time spring comes, you’ll be engaging customers and driving referrals through your newsletters.

3. Practice curating content that informs. Creating newsletters becomes more difficult than it needs to be when you think you need to produce all the content yourself. That’s why many real estate professionals end up just featuring listings in their newsletters, which doesn’t offer customers anything they can’t easily look up online for themselves. Instead, spend some time this winter researching relevant blogs and collecting trend pieces and news stories your clients will find interesting. Then make them your own by adding your views on the topic as the lead to the story. (Just be sure to give credit to the original source.) You’ll learn that this will save you time and boost your credibility as a trustworthy and knowledgeable resource. By spring, you’ll have collected enough perennial content to launch your reimagined newsletter.

4. Review and analyze your performance. Winter is the best time to look back on your year and compare your performance with the past three years to spot patterns. Also, take a closer look at the source of your sales, and break it down by referral, direct mail, email, open house, advertising, and other criteria. This insight is critical to knowing which avenues deliver the strongest ROI. You’ll be armed with knowledge and know where to focus your efforts come spring.

5. Prepare for tax season. This is about your overall business. Don’t wait until the last minute to find a great accountant with terrific bookkeeping skills. Use the winter to find the right accountant for you and to find those missing receipts for entertainment, postage, gas, and marking materials. Also, don’t forget to dig into your files to prepare your tax documents, including bills, medical costs, and donations. Depending on your relationships with your accountant, you might want to give them relevant files every two weeks so that you always know where you stand with sales, estimated taxes, budget, and savings. Use the winter to pick up this habit. Once it becomes part of your routine, it’s a huge relief when April rolls around, and it’ll allow you to focus on what you do best at a critical time in the year: sell houses!

Just because sales slow down in winter doesn’t mean your business has to stall. Use these next few months to build or reinforce the foundation of your business and shore up solid leads for a successful spring season.

©National Association of REALTORS®
Reprinted with permission

The office sector’s rents have essentially recovered from the huge hit they took during the beginning of the pandemic. But it may be due to property owners’ cash gifts and months of free rent offerings that may be winning tenants back and motivating them to sign leases for high-dollar rents. Never have the incentives and offerings for office space been so commonplace in the urban office market, real estate brokers told The Wall Street Journal.

Office building owners are not just offering free months of rent, but they may offer to pay moving expenses and customized alterations to spaces in order to sign new tenants. But in return, tenants are being charged higher rents. Ensuring office rents stay high is also crucial to creating confidence in the sector, agents say.

“For many office landlords, the pandemic is a lethal threat that requires cutting whatever deals it takes to survive as vacancy rates reach levels not seen in decades,” The Wall Street Journal reports. “Paying money to inflate rents helps keep building prices high despite the rise of remote work, meaning landlords can expect to profit when they sell a building or take out a mortgage.”

Ever since the pandemic began, hybrid and remote work have reduced the demand for office space. To avoid rents from falling, building owners are taking steps to keep their buildings leased. They may be willing to agree to longer rent-free periods to do that too.

For example, Roku Inc. is leasing a 240,000-square-foot office near Times Square for more than $90 a square foot. But the company is receiving some incentives too, like more than $30 million for construction work and a rent-free period of 18 to 24 months, The Wall Street Journal reports.

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Reprinted with permission

Florida shone as home to many of the hottest commercial markets in the country in the fourth quarter of 2021. The state boasts nine of the top 15 commercial real estate markets, according to the National Association of REALTORS®’ 2021 Q4 Commercial Real Estate Metro Market Reports.

NAR’s Commercial Real Estate Market Conditions Index reflects market trends in the multifamily, office, industrial, retail, and hotel sectors in 390 metro areas. The index factors in economic and demographic conditions such as employment and wage growth and commercial indicators such as net absorption, vacancy rates, rent, inventory, and transaction price.

The top markets reflected on the list “generally have strong job growth, are experiencing net domestic in-migration, have low vacancy rates, and greater absorption of commercial property, and are experiencing strong rent growth compared to nationally,” Gay Cororaton, an NAR research economist, writes on the association’s Economists’ Outlook blog.

For example, the Miami-Miami Beach-Kendall metro area’s commercial sector is showing vibrancy in multiple commercial sectors. Its office vacancy rate was 10.5% in the fourth quarter compared to 12.2% nationally, NAR says. Asking rents for multifamily apartments have surged 17.4% year over year there compared to 11.3% nationally. Industrial rents in the metro also have surged 15.3% annually compared to 8% nationally.

Listed in alphabetical order, the following metro areas with populations of at least 250,000 had the strongest overall commercial real estate markets in the fourth quarter of 2021, according to NAR’s findings:

• Charleston, S.C.
• Durham, N.C.
• Fort Myers, Fla.
• Jacksonville, Fla.
• Kennewick-Richland, Wash.
• Miami
• Naples, Fla.
• Nashville, Tenn.
• North Point-Bradenton-Sarasota, Fla.
• Orlando, Fla.
• Olympia, Wash.
• Palm Beach, Fla.
• Port St. Lucie, Fla.
• Seattle
• Tampa, Fla.

©National Association of REALTORS®
Reprinted with permission