Fourth Quarter 2020 Insight Highlights Challenges, Opportunities Amid Recovery
February 23, 2021
Houston – While COVID-19 caused a national economic slowdown, the commercial real estate industry has felt the effects unevenly across geographies and property sectors. Fourth-quarter market reports from Transwestern Real Estate Services (TRS) illustrate that while the office sector is suffering its worst downturn since the Great Recession, the industrial sector is surging ahead to meet an uptick in demand for logistics space fueled by trends reinforced during the pandemic.
The economy suffered significant job losses in the first half of the year but has recovered 66% of office-using jobs lost since March 2020. Tenants are delaying major real estate decisions until there is greater clarity on the vaccine rollout timing and a safe return to the workplace. Nationally, office vacancy rose to 11.3% and another 35.7 million square feet of negative absorption was posted in the fourth quarter. Asking rents reflected 2.6% annual growth at year end, though effective rents are lower due to generous concessions landlords are offering in some markets.
Despite many companies accommodating a more flexible work environment, Transwestern CEO Larry P. Heard expects businesses to return to the office post-pandemic to fuel collaboration and gain a competitive advantage.
A 44% boost in online shopping during 2020 caused a sharp uptick in e-commerce activity and continues to intensify demand for warehouse and distribution space across the U.S. Additionally, manufacturing ended the year at a six-year high, with PMI climbing to 57.1 in December. Industrial vacancy closed the year at 5.5% and asking rents climbed to $6.73 per square foot, marking the ninth consecutive year of rent growth. Nationally, 444 million square feet of industrial space is currently under construction, including a significant number of speculative projects.
With continued demand from investors, occupiers and logistics companies, Heard says that the only headwinds facing the industrial market are a lack of skilled workers and the need for even more new construction to meet demand for modern logistics space.
After months of unprecedented challenges driving healthcare delivery decisions, demand for medical office space picked up in the fourth quarter in several markets, including Atlanta and Houston, which posted 92,000 square feet and 46,000 square feet of positive absorption, respectively, as small tenant leasing activity returned for the first time since the onset of the pandemic. That said, the sector is undergoing fundamental shifts in service delivery, with a heavier focus on telehealth capabilities and the emergence of shared workspaces to reduce overhead and operations costs.
As the healthcare sector recovers, both medical office and life sciences assets should remain attractive to investors, Heard said. Evolving patient expectations and strong job growth in these areas provide new opportunities for real estate to support effective healthcare delivery.
About Transwestern Real Estate Services
Transwestern Real Estate Services (TRS) adds value for investors, owners and occupiers of all commercial property types through a comprehensive perspective and by providing solutions grounded in sound market intelligence. Part of the Transwestern companies, the firm applies a consultative approach to Agency Leasing, Asset Services, Tenant Advisory + Workplace Solutions, Capital Markets, and Research & Investment Analytics.
The privately held Transwestern companies have been delivering a higher level of personalized service and innovative real estate solutions since 1978. An integrated approach formed from fresh ideas drives value for clients across commercial real estate services, development, investment management and opportunistic programs for high-net-worth investors. The firm operates through 34 U.S. offices and global alliances with BNP Paribas Real Estate and Devencore. Learn more at transwestern.com and @Transwestern.
Stefanie Lewis Peeler