10/26/2021 | by

The recovery in commercial real estate markets broadened and gained momentum in the third quarter. Office markets showed their first signs of recovery with rising demand and positive rent growth, and demand growth more than doubled for retail properties. Industrial and apartment markets, meanwhile, continued to display record strength:

Demand and Supply of office space
Vacancy Rates
Rent Growth

Office markets registered the increase in leased space since 2020:Q1, with net absorption of 8 million square feet. There were 12 million square feet of newly completed buildings, however, resulting in a 10 bp rise in vacancy rates (this is the smallest rise in vacancy rates, however, since 2019). Rents edged 0.1% higher, the first positive move since the beginning of the pandemic, but are still 0.4% lower than one year earlier;

Demand and Supply of retail space

Retail property markets saw demand strengthen, with net absorption of 32 million square feet, nearly double the second quarter—in fact, strongest net absorption in retail since 2017. Vacancy rates declined 20 bps after a 10 bp decrease in the second quarter. Rents rose 0.7% compared the second quarter, and were 2.0% higher than a year earlier;

Demand and Supply of industrial space

Industrial markets had net absorption of a record 159 million square feet, a 42% increase over the second quarter’s previous record high of 112 million square feet. New supply decreased a bit, to 71 million square feet. The wide gap between net absorption and new supply caused vacancy rates to plunge 50 bps to 4.6%, the lowest on record. Rents rose 2.4% over the second quarter, and were 7.1% higher than one year earlier;

Demand and Supply of apartments

Apartment markets had the second-highest demand ever, with net absorption of 195,000 units, after the record 261,000 net absorption in the second quarter. Net absorption over the past four quarters totaled 735,000 units, a record high and nearly four times the average of 195,000 since 2000 (Chart 6 plots the four-quarter sum due to the strong seasonal pattern in net demand for apartments). Vacancy rates fell 60 bps to a new low of 4.5%. Effective rents were up 3.3% over the second quarter, and 11.6% higher than one year earlier.

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