Q3 2021 Market Report | North America

INDUSTRIAL OVERVIEW: Q3 POSTS MORE RECORD DEMAND

Pandemic-fueled consumer spending drove up third-quarter demand for warehouse and distribution facilities that eclipsed previous records. And despite a nationwide surge in new construction, some metros can barely accommodate the pace of tenant expansion. Additionally, year-over-year rent growth is at a record 6.7% for the industrial property sector as a whole and 7.9% for logistics facilities. The national vacancy rate fell at the fastest pace ever in Q3, settling at a record low of 4.6%. Net absorption in the third quarter totaled 157.9 million SF, a 17.2% increase over Q2’s record-setting net growth of 134.7 million SF. Net absorption through the first three quarters of 2021 totaled 366.5 million SF. The previous record was 278.7 million SF set in 2016. It’s also notable that net absorption already has exceeded the record 342.9 million SF of new deliveries expected this year.

OFFICE OVERVIEW: POSITIVE DEMAND RETURNS

The nation’s office market posted positive net absorption in the third quarter. It was the first quarter of growth since the pandemic hit. The tenant expansion came despite spiking Covid Delta infections that began in early July, renewing employer caution over office re-opening plans. Net absorption totaled 11,792,287 SF in the third quarter. But over the previous 18 months, negative absorption totaled 131 million SF, which accounts for 1.6% of the 8.2-billion-SF inventory. It also is equal to two years of growth in a strong pre-Covid economy, during which the five-year absorption average was 65.5 million SF per year. Construction starts since the lockdown is less than 15 million SF. But over the last two years, 92 million SF emerged from the construction pipeline. The new space represents 1.2% of the total inventory.

RETAIL OVERVIEW: RETAIL DEMAND STAGES A COMEBACK

Retail real estate is staging a notable comeback in 2021 bolstered by enormous government subsidies to consumers who largely are getting vaccinated. While there was a sharp increase in e-commerce in 2020, this year has been brick-and-mortar’s turn. Merchants expanded their real estate footprints again in the third quarter by 28.6 million SF. This follows 20.2 million SF of positive net absorption in the second quarter and 4.5 million SF in Q1 and brings overall year-to-date growth to 53.3 million SF, 52% more than for all of 2019. The strongest growth has come in the last two quarters as vaccines became widely available, allowing workers to return to offices and benefiting bars, restaurants, and apparel stores. Earning reports show rebounding same-store sales.

REITS Outperform Private Equity Real Estate Funds

With interest rates at extremely lows levels and fears of rising inflation heating up, investors have flocked to real estate investment trusts (REITs) as an investment vehicle. Is it wise to do so, what is propelling this move, and what kind of performance should investors expect? This report will explain why there is a surge in demand for REITs and analyze how they are currently performing and how they have performed historically.

1 REITs are often regarded as a substitute for bonds. As a class, they are up nearly 30% this year thus far. It’s not surprising then that as of September 13th, REITs have attracted $10 billion in new money, according to FactSet—nearly as much as they took in over the preceding five years combined.

2 REITs own, operate, or finance income-generating commercial or residential properties. More than 100 mutual funds, closed-end funds, and exchange-traded funds invest primarily in REITs. According to Morningstar, together, they manage more than $224 billion. For reference, equity REITs own real estate while mortgage REITs lend against it. 

3 Without question, 2020 was a challenging year for the industry. The FTSE Nareit All Equity REITs index fell 5.1% last year, including dividends. That was its worst return since 2008 when the index lost 37.7%. In March 2020 alone, REITs specializing in apartments lost 22.6%; hotels and resorts, 36.6%; retailing, 42.7%; regional malls, 54%. Furthermore, more than one-third of U.S. equity REITs have suspended or reduced their dividends since COVID-19 hit, according to Cohen & Steers Inc., an investment firm in New York that manages approximately $100 billion, mostly in real estate.

4 Even though their dividends yields have fallen, returns on investment have exploded due to price appreciation. According to REIT.com, as of September 15, nearly two dozen REITs had total returns of greater than 100% over the past 12 months. Leading ETFs, including iShares U.S. Real Estate and Vanguard Real Estate, are up 27% to 29% so far this year, including reinvested dividends, well ahead of the S&P 500’s 20%.

5 Although no analyst expects these kinds of large returns to go on indefinitely, there is very good reason to believe in REITs’ long-term performance, especially when compared to private equity real estate funds (PERE).

According to findings in a recent research report comparing the performance of REITs and Open-End Core Funds, listed REITs outperformed closed-end PERE funds both on average and by the percentage of individual funds that outperformed. The analysis looked at performance data over a 20-year period (Q1-2000 thru Q4-2019) for both “seasoned” PERE funds, i.e., funds at least four years and older, and also “economic” funds, those with a vintage year of 2014 or earlier and reporting a stable IRR. Based on IRR, listed REITs outperformed seasoned PERE funds by an average of 165 basis points per year and outperformed economic life funds by 186 basis points per year. READ MORE >

Recently Leased | Retail | Boise, Idaho

Boise, Idaho – October, 2021– Lee & Associates Idaho, LLC has facilitated the lease of a 5,830 SF retail space, located at, 8009-8011 W. Fairview Ave., Boise, ID 83704. Lee & Associates’ agents are considered experts in their local markets. In addition, they have access to a national network of 1,000 agents across 60 offices to serve their clients on a local, regional, national and international basis.

Chase Erkins, Principal, and Trey Thomas, Associate, at Lee & Associates Idaho, LLC represented the Landlord, Crossroads RE, LLC and the Tenant, Soleo Health.

Recently Leased | Retail Space | Boise, Idaho

Boise, Idaho – September 2021– Lee & Associates Idaho, LLC has facilitated the lease of a 1,875 SF retail space, located at, 7960 W. Rifleman St., Suite 180, Boise, ID 83704. Lee & Associates’ agents are considered experts in their local markets. In addition, they have access to a national network of 1,000 agents across 60 offices to serve their clients on a local, regional, national and international basis.

Matt Mahoney, Managing Principal, and Austin Hopkins, Associate, at Lee & Associates Idaho, LLC represented the Landlord, Towne Square Station, LLC, and the Tenant, JB Style Bar, LLC was represented by Chase Erkins, Principal, and Trey Thomas, Associate, at Lee & Associates Idaho, LLC.

Recently Leased | Office Space | Boise, Idaho

Boise, Idaho – August, 2021– Lee & Associates Idaho, LLC has facilitated the lease of a 2,627 SF office space, located at, 3100 N. Lakeharbor Ln., Suite 178, Boise, ID 83703. Lee & Associates’ agents are considered experts in their local markets. In addition, they have access to a national network of 1,000 agents across 60 offices to serve their clients on a local, regional, national and international basis.

Trey Thomas, Associate, and Chase Erkins , Principal, at Lee & Associates Idaho, LLC represented the Landlord, Auction Frogs.