National Association of REALTORS® Research Group

July 2021Commercial Market Insights

1

Contents

Economic Conditions

Overview

Multifamily

Office

Industrial

Retail

Hotel

Sustained job creation, more consumer spending, and the continuing return of the workforce to the office underpinned the commercial real estate’s recovery across all property sectors in the first half of 2021.

Acquisitions of investors of commercial real estate rose acquisitions rose 34% in the first half of 2021. Commercial prices continued to recover, with property valuation just 1% below the valuations prior to the pandemic at a broad level. With prices firming up, cap rates continued to compress across all property types, with the lowest cap rates for apartment and industrial property acquisitions.

The apartment and industrial properties remain the most favored assets among the core property types. Apartment absorption rose at the strongest pace in a decade, with the median rent for vacant apartments rising at 18%. In the industrial property sector, the vacancy rate fell to 4.5% with consumers sustaining their e-commerce spending. The retail property market also rebounded, with acquisitions directed towards shopping centers (multi-tenants) than shops (single-tenant), Hotel acquisitions, while accounting for a smaller portion of the investment deals, were 200% above the level one year ago. One use for vacant hotels/motels is for multifamily housing. The office market remains the weakest property sector, suffering sustained occupancy losses in the second half, with a total negative net absorption of 170 million square feet since the pandemic and a vacancy rate of nearly 18%.

Barring a major resurgence of coronavirus cases arising from the delta variant that could lead to another economic shutdown, NAR Research anticipates that sales and commercial leasing will continue to expand in 2021 and more strongly in 2022. However, given the large loss in office occupancy and the office construction in the pipeline, the office vacancy rate will likely continue to remain elevated at the current level throughout 2022.

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Economic ConditionsJobs, spending, mobility continue to trend up

16 million payroll generated from May 2020-June 2021 with 6.7 million jobs to recover

The economy continues to recover, creating new jobs. As of June 2021, the economy has created 16 million net new jobs, or 71% of the 22.4 million jobs lost during March and April 2020. There are 6.7 million nonfarm payroll jobs still to be recovered.

About one in three jobs to still be recovered are in leisure and hospitality, followed by the government sector, health care and social assistance, and professional and businesses services, which each have lost over 500,000 jobs. At the broadest industry level grouping, only the finance and insurance industry had job gains.

Sixty-four of 445 metro areas and their metropolitan divisions, or just 15%, have more jobs as of June 2021 compared to February 2020.

Source: BLS Establishment Survey

Source: BLS Establishment Survey

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In t

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16 Million Payroll Jobs Created With 6.7 Million Lost Jobs to

Recover as of June 2021

25

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-60

-94

-100

-178

-192

-238

-255

-297

-303

-481

-633

-773

-995

-2,181

Finance and Insurance

Utilities

Mining and Logging

Transportation & Warehousing

Real Estate, Rental & Leasing

Information Services

Wholesale Trade

Construction

Educational Services

Other Services

Retail Trade

Manufacturing

Professional & Business Services

Health Care & Social Assistance

Government

Leisure & Hospitality

Nonfarm Payroll Jobs Lost since February 2020 as of June 2021

3

US Census Bureau

14% of the workforce still working from home

Workers are returning to the office. As of June 2021, just 14% of workers teleworked, down from a peak of 35%, but still about thrice the 5.7% share in 2019. Among computer and mathematical workers, 50% are teleworking, about four-fold from the 12% share in 2019. The fraction of workers who telework continues to trend downwards, but a higher fraction of workers will likely work from home compared to the pre-pandemic especially among occupations (e.g. tech workers) who can perform tasks at home.

Consumer spending in food and drinking places is picking up while e-commerce continues to accelerate

Consumer spending in food and drinking places is rising, as more people are vaccination and as states allow businesses to operate at a higher capacity. Retail sales in food and drinking places has steadily increased since February 2021, with sales just 9% below the level in February 2021. Consumers are spending their income, with the savings rate continuing to normalize, to 12.4%, as of June 2021..

Electronic and mail order sales continues to trend upwards in terms of dollar volume, to $902 billion dollars, or 15% of retail trade sales. Prior to the pandemic, electronic sales accounted for just 12.4% of retail trade sales.

Source: BLS COVID-19 Supplemental Survey

5.714.4

12.2

50.3

2019

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Percent of Employed Who Teleworked

Workers 16 years old and over

Computer and mathematical

Source: US Census Bureau American Community

12.40.0

10.0

20.0

30.0

40.0

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$10.0$15.0

$20.0$25.0$30.0

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Personal Income (SA, in Trillion Dollars) and Personal Savings Rate

Personal income Savings rate

0.0%

5.0%

10.0%

15.0%

20.0%

$0

$200

$400

$600

$800

$1,000

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12-Month Running Total of Electronic and Mail Order Retail Sales (in million

dollars)

Electronic shopping sales, in million dollars

as a percent of retail sales

$781,722

$602,816

$706,022

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

Jan

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Retail Sales in Food and Drinking Places, 12-month moving total, in

million dollars

Source: :US Census Bureau

Source: :US Bureau of Economic Analysis

Economic ConditionsJobs, spending, mobility continue to trend up

3

Source: US Census Bureau Small Business Pulse Survey

Inflation surged to 5.4% in June due to uptick in energy and transportation prices

With consumer spending normalizing, the inflation rate (all items) surged to 5.4% in June 2021 due to rising energy and transportation prices. Over a 2-year rolling window, the average inflation rate less the food and energy services averaged 2.1% as of June 2021. In its June 16 meeting, the Federal Open Market Committee kept the federal funds rate at 0 to 25% and the current policy to increase its holdings of Treasury securities by at least $80 billion per month and of agency (Fannie Mae, Freddie Mac, Ginnie Mae) mortgage-backed securities by at least $40 billion per month to steer the economy back to maximum employment

57% of small businesses operating at higher capacity as of July 17, 2021

As the economy continues to recover, a businesses are starting to operate at higher capacity. As of the week of July 17, 57% of small businesses were operating at higher capacity compared to one year ago as COVID-19 cases started to accelerate.

Mobility to places continues to normalize

Mobility continues to normalize based on the number of visits to locations tracked by Google® (where locations settings are turned on) and volume of directions tracked by Apple®. The visit to workplaces, retail stores/recreation is still below the pre-pandemic level (Jan 2020), with visit to workplaces down by 33%. The use of public transportations is about half of the pre-pandemic level.

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Inflation

Inflation-all itemsInflation exc. food and energy, 24-month rolling

38.9

57.0

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Percent of Small Businesses Operating at Higher Capacity

Compared to One Year Ago as of July 17

117.46

55.1

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100120140160180

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Apple® Mobility Trends(January 13, 2020=100)

driving transit

US Bureau of Labor Statistics

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42

-11-33

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-50

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Google® Mobility Trends

retail_and_recreation_percent_change_from_baseline

grocery_and_pharmacy_percent_change_from_baseline

Economic ConditionsJobs, spending, mobility continue to trend up

2

Commercial Market OverviewCRE acquisitions up 34% in first half of 2021

Commercial sales transactions during 2021 H1 Up 34% from one year ago

Commercial real estate (CRE) acquisitions rose 34% during the first half of 2021 compared to the level one year ago, with investment acquisitions up in all property classes.

The apartment CRE market this year’s strongest asset class in terms of size and its strong growth. The dollar volume of apartment transactions from January-June 2021 rose 64% , and it accounts for the largest deal volume, at $92.1 billion. Industrial was the asset with the second largest volume of acquisitions, at $51.9 billion, up 10%.

Acquisitions for office, retail, and seniors housing and care were also up from one year ago. However, office acquisitions rose at the slowest pace of 6%, compared to other property assets, as investors continue to assess how the work from home policy will impact the demand for office space.

The largest increase was of hotels, where acquisitions were up 253% from one year ago. Investors have been acquiring some hotels for conversion into multifamily housing as documented in NAR’s Case Studies on Repurposing Vacant Hotels/Motels into Multifamily Housing.

Commercial real estate prices, just down 1% since January 2020

Commercial real estate prices continue to firm up. As of June 2021, the Green Street Commercial Price Index, an appraisal-based index of high-quality properties held by REITs, is about 1% below the pre-pandemic level in January 2020. The index fell by as much as 10% year-over-year in the second quarter of 2020. The Core Properties Index, comprised of multifamily, office, industrial, retail properties, is also down by less than 1% from January 2020.

Source: Real Capital Analytics

Real Capital Analytics

$52.51

$106.75

$144.71

$- $20 $40 $60 $80

$100 $120 $140 $160 $180 $200

01Q

10

2Q2

03Q

30

4Q

40

6Q1

07Q

20

8Q3

09Q

411

Q1

12Q

213

Q3

14Q

416

Q1

17Q

218

Q3

19Q

421

Q1

Quarterly Commercial Sales Transactions of $2.5M or Over

Vol ($b) YOYOffice 47.5 6%Retail 22.8 22%Industrial 51.9 10%Hotel 20.4 253%Apartment 92.1 64%Seniors Housing & Care 6.8 36%Dev Site 9.9 -4%Total 251.5 34%

H1 '21

-1.3%-0.7%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

Feb

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Jun

/20

21Percent Change in Commercial

Property Prices vs. Jan 2020

GreenStreet All Property Index

GreenStreet Core Property Index

3

Source: NAR calculation based on Nareit data

Cap rates continue to compress

As prices continue to firm up, cap rates continue to compress. Acquisitions for apartment properties had the lowest risk spread (cap rate less 10-year T-note) at 3.3% (4.5% one year ago), followed by industrial acquisitions, at 4.1% (5.3% one year ago). Hotel acquisitions had the highest risk spread at 6.7% (7.9% one year ago). For office acquisitions, the risk-adjusted cap rate was 4.9% (5.9% one year ago). The risk-adjusted cap rates for retail properties has also declined to 5.0% (6.0% one year ago). As of June, the 10-year T-bond (risk-free rate) was 1.6%.

Industrial and self-storage REITs have highest returns

The total return on REITs invested in various types of assets has turned from negative in 2020 to as of June 2021 compared to January 2020, except for office REITs which continue to show a total return of –6.7%. The highest total returns (price and dividend) as of June 2021 relative to January 2020 were in self-storage (47.4%), industrial (28.8%), and infrastructure (26.6%).

CMBS delinquency rates continue to decline

As the economy continues to recover, delinquency rates continue to fall to 6.2% in May 2021. The highest loan delinquencies are In lodging, at 14.3%, and the lowest was industrial, at less than 1%.

Source: NAR calculation based on Real Capital Analytics data

3.3%4.1%

5.0%4.9%

6.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

01Q

10

2Q3

04

Q1

05Q

30

7Q1

08Q

310

Q1

11Q

313

Q1

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316

Q1

17Q

319

Q1

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3

Risk Spreads for Properties $2.5 Million or Over (Cap Rates Less 10-Year T-

Bond)

ApartmentIndustrialRetailOfficeHotel

-6.7%

28.8%

6.9%2.8

47.4%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

Feb

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Au

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-21

Total Return (%) of Equity REITS as of June 2021 Compared to January 2020

office industrialretail aptlodging healthcareself-storage Infrastructure

6.1514.27

0.652.09

10.71

05

1015

202530

Jan

-19

Ap

r-19

Jul-

19

Oct

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Jan

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Ap

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Jul-

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Oct

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Jan

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Ap

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CMBS Marked as 30 Days + Delinquent as of June 2021

All Industrial

Lodging Multifamily

Office Retail

Commercial Market OverviewInvestment acquisitions up 34% in first half of 2021

5

The apartment CRE market is experiencing a boom. Net absorption of apartment units reached its strongest level in a decade, with a net absorption of about 207,000 units.

With strong demand, the median monthly rent for vacant units during 2021 Q1 rose 18% from one year ago, as the median monthly rent rose to $1,226 in 2021 Q1, according to the US Census Bureau.

Among 138 apartment markets, only San Francisco had negative net absorption of apartment units (-2,730 units) while all other metro saw a net gain in renter households during 2020 Q1- 2021 Q2.

Thirty-nine out 138 markets or 28% double digit increase in the effective rent as of July 12, 2021 compared to one year ago. Even the markets that saw a decline in rent during 2020 how have higher rents that on year ago, such as New York City (+3%), Washington DC (6%), San Francisco (+5.4%), San Jose (3.1%), and Seattle (+7.2%).

2%

18%

-5%

0%

5%

10%

15%

20%

Q1/

2017

Q3/

2017

Q1/

2018

Q3/

2018

Q1/

2019

Q3/

2019

Q1/

2020

Q3/

2020

Y/Y Percent Change in the Vacant for Rent Median Monthly Rent

MultifamilyStrongest absorption in a decade with soaring rent growth

Source: NAR analysis of CoStar data

Source: US Census Bureau

5

The apartment CRE market accounted for the largest volume of CRE investment deals, at $91 billion as of the first half of 2021. with deals up 64% from one year ago.

Acquisitions of garden or low-rises (less than four flours) rose at a stronger pace of 68% in the first half , compared to acquisitions for mid-rises which rose 56%. Garden or low-rises are usually in the suburbs, so this indicates a stronger demand for multifamily housing in the suburbs than in the central business districts. Garden or low-rises account for 79% of the total number of property acquisitions as of June 2021.

The market share of the six major markets (New York City, Chicago, Boston, Washington DC, Los Angeles, San Francisco) in terms of property acquisitions has been declining since the pandemic, with the share at 12.5% from accounted 15.2% in 2021 Q1.

Los Angeles, Dallas, Phoenix, Atlanta, and Houston were the markets with the most investment acquisition deals in the first half of 2021.

MultifamilyMultifamily acquisitions up 6% in the 2021 H1

Source of data: Real Capital Analytics

$28

$11

$53

$0.0$10.0$20.0$30.0$40.0$50.0$60.0$70.0

01Q

10

2Q3

04

Q1

05Q

30

7Q1

08Q

310

Q1

11Q

313

Q1

14Q

316

Q1

17Q

319

Q1

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3

Bill

ion

s

Sales Transactions of $2.5M or Over

Low-rise (< 4 fl) Mid/Highrise All

78.9%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

02Q

30

3Q4

05Q

10

6Q2

07Q

30

8Q4

10Q

111

Q2

12Q

313

Q4

15Q

116

Q2

17Q

318

Q4

20Q

121

Q2

Share of Acquisitions of Garden-type Multifamily Properties to Total

Acquisitions

12.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

02Q

30

3Q3

04

Q3

05Q

30

6Q3

07Q

30

8Q3

09Q

310

Q3

11Q

312

Q3

13Q

314

Q3

15Q

316

Q3

17Q

318

Q3

19Q

320

Q3

Share of Six Major Markets to Total Acquisitions/Investments of Multifamily

Properties

274202

165148

118100

9188

807974727168676361575554

Los AngelesDallas

PhoenixAtlanta

HoustonChicago

San DiegoDenver

No NJMinneapolis

AustinManhattan

BostonMiami/Dade CoNYC Boroughs

SeattlePortland

Tertiary NortheastSan Antonio

East Bay

Most Active Multifamily Markets by Number of Property Acquisitions Year-

to-date through June 2021

7

Office occupancy continued to decline in 2021 Q2, with negative net absorption of 39 million square feet (MSF). Since 202 Q2, 170 MSF has become unoccupied. Investors remain wary of investing in the office market, as businesses are still assessing their work from home policies. To date, there are also still 500,000 fewer professional and business workers compared to the pre-pandemic level and half of computer/tech workers are still working from home,

New leasing is still happening, with 50 MSF of new leased space in 2021 Q2 , but leasing is down from about 80 MSF prior to the pandemic.

With a decline in occupancy, the office vacancy rate has increased to 17.2%, from 13% in 2020 Q1. Vacancy is likely to still keep rising with 107 MSF of construction underway.

However, asking rents are holding firmly and even rising, effective rents could be lower with tenants receiving more tenant concessions to attract them to move.

O

17.2%

0%

5%

10%

15%

20%

(60)

(40)

(20)

-

20

40

2012

Q1

2012

Q4

2013

Q3

2014

Q2

2015

Q1

2015

Q4

2016

Q3

2017

Q2

2018

Q1

2018

Q4

2019

Q3

2020

Q2

2021

Q1

Mill

ion

s

Net Absorption of Office Space (MSF) and Vacancy Rate as of 2021 Q2

Absorption Vacancy Rate

Source: Cushman and Wakefield

$35.5

$0.00$5.00

$10.00$15.00

$20.00$25.00$30.00$35.00$40.00

1995

Q1

1997

Q1

1999

Q1

200

1 Q1

200

3 Q

120

05

Q1

200

7 Q

120

09

Q1

2011

Q1

2013

Q1

2015

Q1

2017

Q1

2019

Q1

2021

Q1

Office Asking Rent

Source: Cushman and Wakefield

Source: Cushman and Wakefield

50

- 20 40 60 80

100

200

2 Q

120

03

Q3

200

5 Q

120

06

Q3

200

8 Q

120

09

Q3

2011

Q1

2012

Q3

2014

Q1

2015

Q3

2017

Q1

2018

Q3

2020

Q1

Mill

ion

s

New Leasing Activity

1,603,166549,875

473,489254,659

145,958105,958102,86597,131

62,88235,18328,09927,85125,22815,8534,0613,5001,207

San Mateo CountyAtlanta

San DiegoEl Paso

Fort Myers/NaplesOmaha

RochesterCharleston

RenoMemphis

IndianapolisPalm Beach

CharlotteProvidence

SavannahBinghamton

Fredericksburg

Markets that Had Positive Net Absorption in 2021 Q1

-1,073,857-1,137,609-1,208,164-1,253,052-1,266,252

-1,493,174-1,692,438-1,824,661-1,878,186-2,006,244

-2,520,971-2,817,881

-3,287,407-3,477,877

-4,018,402-4,840,290-5,030,093

Oakland/East BaySan JoseDenverPhoenixHoustonBostonNew Jersey - NorthernNew York - DowntownLos Angeles Non-CBDSan FranciscoSouth - West South CentralNortheast - New EnglandChicagoSouth - South AtlanticWest - MountainMidwest - East North CentralNew York - Midtown

Markets with Negative Net Absorption of at least 1 Million Square Feet

OfficeNegative net absorption, but some uptick in investments

7

Year-to-date through June, acquisitions of office property or portfolios were up 6% year-over-year, a modest growth compared to other asset classes (apartment, 64%; industrial, 10%; retail, 24%).

riven by the growth in acquisitions in the suburban markets that rose 12% year-over-year. However, acquisitions in the central business district (CBD) markets were down 5%.

The suburban property markets accounted for 90% of acquisitions in terms of number of property acquisitions.

The six major markets (New York City, Chicago, Boston, Washington DC, Los Angeles, San Francisco) accounted for 27% of the acquisitions. In 2020 Q1, these markets accounted for 31% of investment deals.

The top markets with the largest number of property investment deals were Los Angeles, Dallas, Boston, Atlanta, Phoenix, and Seattle. Worth noting is that Manhattan is not in the top 20 list (with 32 investment deals).

Source of data: Real Capital Analytics

$7.2

$18.8$26.0

$- $10 $20 $30 $40 $50 $60 $70 $80 $90

01Q

10

2Q2

03Q

30

4Q

40

6Q1

07Q

20

8Q3

09Q

411

Q1

12Q

213

Q3

14Q

416

Q1

17Q

218

Q3

19Q

421

Q1

Bill

ion

s

Sales Transactions of $2.5M or Over

Office - CBD Office - Sub All

90%

60%65%70%75%80%85%90%95%

02Q

10

3Q2

04

Q3

05Q

40

7Q1

08Q

20

9Q3

10Q

412

Q1

13Q

214

Q3

15Q

417

Q1

18Q

219

Q3

20Q

4

Share of Suburban Office Property Transactions to Total Transactions

(Properties)

31%27%

0%5%

10%15%

20%25%30%35%40%45%50%

02Q

10

3Q2

04

Q3

05Q

40

7Q1

08Q

20

9Q3

10Q

412

Q1

13Q

214

Q3

15Q

417

Q1

18Q

219

Q3

20Q

4

Share of Office Property Transactions in the Six Major Markets to Total

Transactions (Properties)

11780

7373

6868

6654

4948

46444343

393737

343333

Los AngelesDallas

BostonAtlanta

PhoenixSeattle

San DiegoSan JoseHouston

No NJDenver

Salt Lake CityMiami/Dade Co

Orange CoBrowardChicago

Palm Beach CoTampa

PhiladelphiaAustin

Most Active Office Markets by Number of Property Acquisitions YTD through June

2021

OfficeNegative net absorption, but some uptick in investments

10

Industrial Record setting continues as industrial sector remains hot

Rental vacancy rate declined from the prior quarter

The U.S. rental vacancy rate decreased from 4.9% in 2021 Q1 to 4.5% in 2021 Q2. Q2 2021 vacancy rate was also a 60 bps decline on a year-over-year basis with the acceleration of e-commerce continuing to result in significant industrial space demand for which is outpacing supply.

The lowest vacancy rates in U.S. were in the following markets : Orange County (1.6%), Philadelphia (1.7%), Inland Empire (1.7%) and Los Angeles (1.7%).

Net absorption sets quarter record

U.S. net absorption set a quarter record in Q2 2021 with 110.2 million square feet. New leasing activity in Q1 2020 saw 212.5 MSF which is just short of the previous record set in Q1 2021 (214.4 MSF) as e-commerce sales continues to push demand forward for warehouse/distribution space.

New record set for industrial asking rents

U.S. industrial asking rents reached new heights in Q2 at $7.03 as firm demand and tight conditions remain are key drivers invigorating rent growth. Q2 rent growth increased 6.8% from the same period a year ago and 1.6% over Q1 2021. The west saw the highest asking rents with $10.39 for Q2 2021.

4.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2001

Q3

2002

Q4

2004

Q1

2005

Q2

2006

Q3

2007

Q4

2009

Q1

2010

Q2

2011

Q3

2012

Q4

2014

Q1

2015

Q2

2016

Q3

2017

Q4

2019

Q1

2020

Q2

Source: NAR analysis of C&W Data

QTR Industrial Vacancy Rate

110,216,578

-100,000,000

-50,000,000

0

50,000,000

100,000,000

150,000,000

2001

Q1

2002

Q3

2004

Q1

2005

Q3

2007

Q1

2008

Q3

2010

Q1

2011

Q3

2013

Q1

2014

Q3

2016

Q1

2017

Q3

2019

Q1

202

0 Q

3

QTR Industrial Net Absorption

212,527,165

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

2002

Q3

2003

Q4

2005

Q1

2006

Q2

2007

Q3

2008

Q4

2010

Q1

2011

Q2

2012

Q3

2013

Q4

2015

Q1

2016

Q2

2017

Q3

2018

Q4

2020

Q1

2021

Q2

QTR Industrial Leasing

$7.03

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

2001

Q1

2002

Q2

2003

Q3

2004

Q4

2006

Q1

2007

Q2

2008

Q3

2009

Q4

2011

Q1

2012

Q2

2013

Q3

2014

Q4

2016

Q1

2017

Q2

2018

Q3

2019

Q4

2021

Q1

QTR Industrial Rents

9

Industrial Acquisitions exceed previous levels in Q2 2021

Given the strong market fundamentals, Investor acquisitions of industrial properties or portfolio acquisitions of $2.5 million or over for Q2 2021, increased 139% year-over-year as transaction volume for both flex and warehouse properties totaled $29.8 billion. Sales for Q2 2020 totaled $12.4 billion. The industrial sector has moved beyond previous levels as transaction volume and prices increase. Industrial properties see continued investment activity as investors seek ownership of assets where e-commerce goods are stored.

As a result, investment in industrial properties continues to be lead by warehouse acquisitions as they account for majority of industrial transactions in Q2 2021. Warehouses’ share of total industrial volume increased towards 79%, up from 75% in Q2 2020 but a marginal decrease from Q1 2021.

The average price per square foot of industrial acquisitions in Q2 increased by $20 from Q1. The average price per square foot for flex properties rose to $166/sq.ft., up from $143/sq.ft. recorded in Q1. Warehouse average price per square foot increased $18 from the Q1 level towards $112 in Q2, for which increases in both flex and warehouses indicate price growth.

Year-to-date as of June 2021, the most active markets with respect to industrial property acquisitions were Los Angeles (288), Chicago (182), Atlanta (173) and Inland Empire (138).

$3.5 $3.3 $5.9 $4.8 $4.1

$2.2

$6.0

$13.6 $10.5 $11.7

$15.1 $16.5

$10.2

$23.7

Q2 2015 Q2 2016 Q2 2017 Q2 2018 Q2 2019 Q2 2020 Q2 2021

in B

illio

ns $

Q2 Industrial Sales Transaction Comparison (Billion $)

Flex Warehouse

$6

$24 $30

$-

$10

$20

$30

$40

$50

'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'19'20'21

Billi

ons $

Source: NAR analysis of RCA Data

QTR Industrial Sales Transactions of $2.5M or Over (in Billions $)

Flex Warehouse All Industrial

$166

$112$120

$- $20 $40 $60 $80

$100 $120 $140 $160 $180 $200

'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'19'20'21

QTR Average Sales Price Per Square Foot for Industrial Properties

Flex Warehouse All Industrial

288

182173138133130111103 99 95 88 71 69 68 68 61 61 61 59 56

Los A

ngel

esCh

icag

oAt

lant

aIn

land

Em

pire

Hous

ton

Dalla

sPh

oeni

xBo

ston

No

NJ

Ora

nge

CoSe

attle

San

Dieg

oEa

st B

ayM

inne

apol

isN

YC B

orou

ghs

Phila

delp

hia

Char

lott

eM

iam

i/Dad

e Co

Sacr

amen

toLa

s Veg

as

Most Active Industrial Markets by Number of Property Acquisitions YTD Through June

2021

11

Retail Rebounding, but investors remain cautious

Commercial sales/acquisitions of retail properties or portfolio acquisitions of $2.5 million or more recorded $13.7 billion in Q2 2021. This represents a year-over-year increase of 154%. While the reopening of both retail locations and the overall economy has progressed as consumers participate in traditional, pre-pandemic activities, the 154% yoy change in volume is more about the apprehensions surrounding retail one year ago.

This investor uncertainty remains today, albeit not as much as last year, when comparing the current transaction volume in Q2 2021, $13.7 billion, to Q2 pre-COVID averages.

While exhibiting sliding or flat property prices for 2020, the trend is improving. The average price per square foot for all of retail was $184/sq.ft. in Q2 2021 and marks two quarters in a row of appreciation where shops averaged $246/sq.ft. and centers averaged $154/sq.ft.

Sales of shopping centers accounted for 54% of all retail transactions in Q2 2021 which was up from the 47% recorded in Q1 2021 and up from 40% Q2 2020.

Year-to-date as of June 2021, the most active markets with respect to retail property acquisitions were Los Angeles (137), Chicago (104), Atlanta (103) and Dallas (99).

$6 $7

$14

$-

$5

$10

$15

$20

$25

$30

$35

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

Billi

ons $

Source: NAR analysis of RCA Data

QTR Retail Sales Transactions of $2.5M or Over (in Billions $)

Shops Centers All Retail

54%

0%10%20%30%40%50%60%70%80%90%

100%

'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'19'20'21

Centers Share of Total Retail Transaction Volume

$246

$154 $184

$-

$100

$200

$300

$400

$500

'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'19'20'21

Average Sales Price Per Square Foot for Retail Properties

Shops Centers

137

104103 9987

72 7059 52 47 46 45 44 43 41 39 39 38 37 35

Los A

ngel

esCh

icag

oAt

lant

aDa

llas

Phoe

nix

Hous

ton

NYC

Bor

ough

sO

rang

e Co

Tam

paN

o N

JCh

arlo

tte

Orla

ndo

Man

hatt

anBo

ston

Min

neap

olis

San

Dieg

oSe

attle

Mia

mi/D

ade

CoIn

land

Em

pire

East

Bay

Most Active Retail Markets by Number of Property Acquisitions YTD Through June

2021

12

Retail Sales transactions volume rebounds in Q1 2021

The dollar sales volume of retail property acquisitions in the six major markets (6MM which are New York, Boston, Chicago, Washington DC, Los Angeles, and San Francisco) rebound in 2021 Q2 as transaction volume totaled $3.6 billion which is 99.6% above the same period a year ago and up on a quarter year-over-year basis of 28.2%.

Dollar sales volume for the non major markets (NMM) was $10 billion. Q2 2021 sales volume was up 189% from Q2 2020 and up 59.1% from Q1 2021.

6MM Q2 2021 retail sales transactions of centers accounted for 46% of transactions where as NMM, centers account for 57% of retail sales transactions.

Q2 average sales price per square foot of retail space in the 6mm fell -17% from Q1 2021 in comparison to the price per square foot of retail in the NMM which grew (9%) over the same period.

Q2 average cap rates for 6mm marginally increased from Q1 to 6.2% while NMM remains flat from the prior quarter, 6.7%.

$4

$10

$-

$5

$10

$15

$20

$25

$30

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

Billi

ons

6MM vs NMM QTR Retail Sales Transactions of $2.5M or Over (in Billion

$)

6MM NMM

$273

$163

$-

$100

$200

$300

$400

$500

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

6MM vs NMM Average Sales Price Per Square Foot for Retail Properties

6MM NMM

6.2%6.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

6MM vs NMM Average Cap Rates for All Retail Properties

6MM NMM

383

1,323

0

500

1,000

1,500

2,000

2,500

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

6MM vs NMM QTR Number of Properties

6MM NMM

Acquisitions of hotel properties of $2.5 million or over rose 39% in the first half of 2021 rose over 200% to $20.4 billion, as acquisitions increased for both full-service (219%) and limited-service hotels (281%).

Acquisitions for full-service hotels totaled $8.3 billion during the first half while acquisitions for limited service hotels rose $12.1 billion. Limited service hotels made up 89% of the total volume of acquisitions.

The average cap rate among full-service hotel acquisitions has been treading downwards, to 7.6%. The average cap rate among limited-service acquisitions has remained stable at nearly 9%.

Dallas and Houston attracted the most hotel investors. Rounding out the top five were Los Angeles, Chicago, and Seattle.

HotelStrong investor interest

Source of data: Real Capital Analytics

$- $5

$10 $15

$20 $25 $30 $35

05Q

10

6Q2

07Q

30

8Q4

10Q

111

Q2

12Q

313

Q4

15Q

116

Q2

17Q

318

Q4

20Q

121

Q2

Bill

ion

s

Hotel Sales Transactions of $2.5 Million or Over

Full-Service Limited Service All

89%

20%

30%

40%

50%

60%

70%

80%

90%

100%0

5Q1

06Q

10

7Q1

08Q

10

9Q1

10Q

111

Q1

12Q

113

Q1

14Q

115

Q1

16Q

117

Q1

18Q

119

Q1

20Q

121

Q1

Share of Limited-service Hotels to Total Acquisitions

7.6%8.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

05Q

10

6Q2

07Q

30

8Q4

10Q

111

Q2

12Q

313

Q4

15Q

116

Q2

17Q

318

Q4

20Q

121

Q2

Cap Rates

Full-Service Limited Service

4847

3936

34333232

28252525

2222222121212120

DallasHouston

Los AngelesChicago

SeattleOrlandoAtlanta

PhoenixOrange Co

DC VA burbsAustin

DenverMiami/Dade Co

Raleigh/DurhamTampa

Richmond/NorfolkDetroit

East BaySan Diego

San Antonio

Most Active Retail Markets by Number of Property Acquisitions YTD Through June

2021

©2021 National Association of REALTORS®

All Rights Reserved. May not be reprinted in whole or in part without permission of the National Association of REALTORS®.

For question about this report or reprint information, contact data@realtors.org.

COMMERCIAL MONTHLY INSIGHTS REPORT July 2021

LAWRENCE YUN, PhDChief Economist & Senior Vice President for Research

GAY CORORATON Senior Economist & Director of Housing and Commercial Research

BRANDON HARDIN Research Economist

MEREDITH DUNNResearch Manager

Download report at https://www.nar.realtor/commercial-market-insights

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