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Featured topics:

  • Home Prices
  • COVID Cases, Guidelines, and Economic Impact
  • Independent Landlord Rental Performance
  • REITs: 2021 In Review
  • Building Materials Inflation
  • FOMC December Meeting
  • December Retail Activity
  • Notable Industrial Deals
  • Record Transaction Activity
  • Natural Gas Futures

Commercial Real Estate Economic Update 1.03.2022 – (Download Full PDF)


• National home price growth has receded from its peak but continues to be strong, registering a 19.1% year-over-year increase in October, the latest month of data available from the S&P CoreLogic CaseShiller Home Price Index. Annual increases have slowed since reaching an all-time high of 19.9% in August but remain well above historical averages.

• Phoenix leads all metros in year-over-year growth for the 29th consecutive month, with home prices climbing by a staggering 32.3% since October 2020. Tampa and Miami remain standouts at 2nd and 3rd, where home prices rose 28.1% and 25.7%, respectively. The two Florida metros have maintained their strength after eclipsing their Western compatriots San Diego and Seattle over the summer, which had dominated growth alongside Phoenix for much of 2021.

• Historic home price growth continues to be a nationwide phenomenon, but the dominance of cities across the southwest and southeast throughout this cycle is indicative of changing locational preferences among homebuyers, with factors such as remote work expanding consumer choice in the housing market.


• COVID-19 cases in the United States continued to reach record levels over the holiday weekend, according to data estimates from Johns Hopkins University. The 7-day average for new cases climbed to a new high of 239,100 on December 27th, up from 147,138 one week earlier. This comes amid an estimated 545,415 new cases on Monday, December 27th, eclipsing a pandemic record of 302,890 new cases reported just one week ago.

• On Monday, December 27th, US health officials revised self-isolation guidance for asymptomatic people and for those who have come in close contact with someone who’s tested positive, decreasing the self isolation days in the former from 10 to 5 days.

• According to CDC officials, the updates, on the one hand, are a result of growing evidence of a shorter window of infectiousness following a positive COVID-19 test. On the other hand, they reflect a need to revise public guidance with the nation battling a surge driven by Omicron, a strain that is more transmissible yet less severe. According to officials, retaining earlier quarantine restrictions could threaten the ability of key sectors such as hospitals and airlines to stay staffed and maintain operations.

• So far, the surge in cases has not had as much of an impact on US economic activity. The Weekly Economic Index registered a slight increase during the week of December 25th from the week prior, reflecting an increase in consumer confidence, according to the New York Federal Reserve.


• New research by Chandan Economics tracking rent payments for mom-and-pop owned apartment units finds that, on average, independently operated properties were more sensitive to pandemic distress than properties operated by institutional managers. At the same time, while rent payments were often late throughout this period, full collection rates remained stable— never falling below 82.0%. The full-collection rate for November, the latest month of complete data, stood at 85.2%

• Utilizing data provided by property management software RentRedi dating back to March 2020, on time rent collections fell as low as 71.3% in August 2020 before reversing the trend as the economy regained footing. Through December 2021, on-time collection rates stand at 77.6%— a 49 bps drop from November.

• The report’s property type analysis also reflects the relatively new strength of single-family rentals (SFRs) compared to other sectors. Entering the pandemic, SFRs had the lowest on-time rates relative to 2-4 family, and 5-49 multifamily unit properties, with just 78.0% of payments coming in on time in March of 2020. Through December, SFR leads the next best performing property type by 82 bps, and through November measured an unpaid rate of just 13.4%. Meanwhile, rental units in small Multifamily (5-49 units) properties reported 15.5% unpaid in November, while 2-4 family units reported a nonpaying share of 16.0%.


• Real Estate Investment Trusts (REITs) experienced a booming year in 2021, taking advantage of Commercial Real Estate’s resiliency throughout the pandemic. According to FTSE NAREIT, Equity REITs have climbed by 36% year-to-date through December 23rd, 10 percentage points higher than the S&P 500, according to an analysis by TheRealDeal.

• Self-storage REITs have taken the crown since the start of the pandemic, climbing by more than 80% since March 2020. The industrial sector has been another huge winner, climbing by an average of more than 40%. Office, Hotel, and Retail REITs, on the other hand, have struggled.

• Analysts warn that 2022 may introduce new risks to REITs stemming from additional COVID variants, inflation, and interest rate contagion risk. While real estate has long been seen as a reliable hedge against inflation, the prospect of sliding consumer confidence and increased cost constraints for buyers poses a potential risk to the market that investors should be aware of over the coming months.


• After giving builders a bit of a break toward the end of Summer 2021, lumber and other material prices have started rising again in recent weeks— a development that is sure to have implications on construction activity to start the new year.

• After lumber futures reached a record high in May before receding back to normal levels, prices per thousand board feet climbed above $1,000 again in December as the market prices in resilient homebuilding demand battle against a persistent supply chain disruption.

• In addition to lumber, the producer price index for iron and steel fabricated industrial buildings have also climbed. According to the Bureau of Labor Statistics, the PPI for these materials is up 35% year-over-year


• In the FOMC’s December meeting, policymakers signaled their intentions to accelerate its pace of tapering, reducing its asset purchases by $30 billion in January to a total of $60 billion. The move comes after the Fed had last reduced its monthly bond-buying by $15 billion between November and December. The statement mentioned reflected rising concerns about inflation’s strength relative to their view on the labor market being short of full employment.

• The December 15th release of the Summary of Economic Projections showed an expectation of at least three rate hikes in 2022, followed by another three in 2023.

• Their projections also included an estimated fall in real GDP from 5.5% in 2021 to 4.0% in 2022. Their report also projects a steep fall in core PCE inflation from 4.4% in 2021 to 2.7% in 2022, followed by a slower deceleration in the years following, falling to just 2.1% in 2024. The Federal Reserve’s target for long-run core PCE inflation is 2%, but they have signaled a willingness to let it hold above that level for a short period to make up for previous periods of low inflation.

• The meeting follows the World Health Organization’s announcement of the Omicron COVID-19 variant but came before the more accelerated spike in US cases on and around the Christmas holiday, though a rise in cases was largely expected among expert sources.


• Data collected from the December 13th-21st issue of the Texas Retail Outlook Survey, a monthly snapshot of retail sentiment in the region collected by the Dallas Fed, showed robust consumer activity in the run-up to the Christmas holiday. Meanwhile, business owners expressed increased optimism as they look toward the new year.

• The Texas survey provides a timely measure of business activity for roughly 10% of the US retail industry by employment and is reported before many of the monthly and quarterly indicators typically relied on to observe retail conditions. While annual sales growth slowed in December, the index continued to sit well above its historical pace of 4.8, registering a reading of 13.4 in December from 23.0 in November (a positive reading of the index indicates an increase above the prior month, while a negative reading indicates a decrease in conditions).

• In a potential sign of improving supply chain conditions, firms reported the largest net increase in inventories in nearly three years. Retailers also signaled improved hiring conditions, as the labor market component rose from 5.9 in November to 7.2 in December while wage pressures reportedly eased.

• While the general business activity index declined over the month, likely reflecting renewed virus concerns, the company outlook index rose to its highest reading since April. Outlook uncertainty decreased in the month, while expectations for future sales increased eight points to 44.2.


• In addition to gifts, family gatherings, longer nights, and higher energy bills, December also brings a ton of end-of-the-year closings on commercial real estate deals.

• The Industrial market completed some notable transactions recently, with Faropoint acquiring a 10-building portfolio in the Northern New Jersey area for $132.5 million, indicating a strategy aimed at gaining proximity to the densely populated New York metro.

• McDonalds Development also sold its 14-building Southeast US Industrial portfolio for a price tag of $395.5 million in December. The portfolio includes 2.7 million square feet of mostly multi-tenant buildings in the burgeoning Sun Belt region.

• Giants such as Blackstone Group, Rockefeller Group, and Prologis also announced warehouse, factory, or industrial development parcel purchases in the New York region in just the past week.


• Transaction Activity is projected to have reached an all-time high in 2021, with investors recording $205 billion in deals through the third quarter and signs of more of the same in the fourth.

• Multifamily and Industrial dominated transaction volume, a shift from the historically higher performance of the Office sector. According to an analysis by Transwestern, Apartment transaction volumes have increased by 43% since 2019, while Industrial volumes have increased by 15% over the same period. Falling Office demand from the pandemic’s work-from-home shift alongside shifting household preferences prompted this trend.

• Cap rates for both Multifamily and Industrial have resultantly compressed throughout the course of the year as prices climbed and risk premiums shrank.


• Transaction Activity is projected to have reached an all-time high in 2021, with investors recording $205 billion in deals through the third quarter and signs of more of the same in the fourth.

• Multifamily and Industrial dominated transaction volume, a shift from the historically higher performance of the Office sector. According to an analysis by Transwestern, Apartment transaction volumes have increased by 43% since 2019, while Industrial volumes have increased by 15% over the same period. Falling Office demand from the pandemic’s work-from-home shift alongside shifting household preferences prompted this trend.

• Cap rates for both Multifamily and Industrial have resultantly compressed throughout the course of the year as prices climbed and risk premiums shrank.


• (1) https://www.spglobal.com/spdji/en/index-announcements/article/sp-corelogic-case-shillerindex-reports-191-annual-home-price-gain-in-october/

• (1) https://fred.stlouisfed.org/series/CSUSHPISA#0

• (2) https://www.nytimes.com/interactive/2021/us/covid-cases.html

• (2) https://www.cdc.gov/media/releases/2021/s1227-isolation-quarantine-guidance.html

• (2) https://www.newyorkfed.org/research/policy/weekly-economic-index#/interactive

• (3) https://www.chandan.com/independentlandlordrentalreport

• (4) https://www.reit.com/data-research

• (4) https://therealdeal.com/2021/12/28/reits-notched-banner-year-in-2021-but-2022-could-berocky/

• (5) https://www.globest.com/2021/12/28/sure-lumbers-expensive-and-so-is-everything-else/

• (6) https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

• (6) https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf

• (7) https://www.dallasfed.org/research/surveys/tssos/2021/2112.aspx

• (8) https://therealdeal.com/2021/12/28/industrial-buyers-cant-stop-wont-stop/?utm_ source=internal&utm_medium=widget&utm_campaign=feature_posts

• (8) https://www.globest.com/2021/12/23/industrial-deals-race-to-the-finish-line/

• (9) https://www.globest.com/2021/12/22/year-to-date-transaction-volume-is-the-highest-onrecord/

• (10) https://www.naturalgasintel.com/natural-gas-futures-steady-in-rare-quiet-session-ahead-ofexpiration-cash-rising/

• (10) https://www.cnbc.com/2021/12/06/us-natural-gas-plummets-more-than-10percent-followingworst-week-since-2014.html 

©2021 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

SVN 2021 Annual Report

Through The (Murky) Looking Glass

Trends to Watch in Commercial Real Estate and Beyond in 2022

Commercial real estate weathered a difficult year in the wake of the COVID-19 pandemic. But despite its challenges, 2021 was a year of transformation for the industry.

The year ahead is likely to see improvement in our markets as the economy continues to recover. In this report, the research team at SVN fixes its eye on the horizon, offering predictions and guidance on the year ahead for commercial real estate.


SVN Annual Report- December 2021- Through the Murky Looking Glass – (DOWNLOAD FULL REPORT – PDF)


Commercial real estate weathered a difficult year in the wake of the COVID-19 pandemic. Physical distancing changed the way we inhabit and interact with physical space, and the cumulative effects of the virus have made demand for many types of space go down, leaving markets reeling and “in recovery mode.”

Despite its challenges, 2021 was a year of transformation for the industry. The year ahead is likely to see further improvement in our markets as the economy continues to recover.

Here, the research team at SVN fixes its eye on the horizon, offering predictions and guidance on the year ahead for commercial real estate. We offer three trends likely to persist through 2022:

1. The suburban office renaissance is still in its early stages.

2. Apartment cap rates will see upward pressure.

3. The labor market shortage is not going away.


Commence the Renaissance

Picture this: The date is January 2001. You are in the market for acquiring a new office location for your company’s headquarters. You can either choose a suburban office location and pay $132 per square foot, or pay a modest 12.9% premium at $149 per square foot to bring your office into the central business district (CBD).

Now, fast-forward to 2018. Once again, your company is on the move, and you are tasked with heading up the re-location selection process. Your options are: 1) Select a suburban office location for $211 per square foot, or 2) Pay a hefty 77.3% premium to bring the office to the city center at $374 per square foot.

This is a hypothetical situation, of course, but it demonstrates a real truth: the comparative value between suburban and CBD-located office space dramatically changed in less than two decades’ time. Even before the pandemic (starting in early 2019), the long-dated trend of an increasing premium for CBD-located office assets had started to reverse. Of course, once the pandemic hit and downtown city center emptied, the price convergence accelerated as suburban assets have seen record levels of price growth while CBD assets have yet to recover their pre-pandemic highs. Through Q3, the average price premium for CBD office assets over suburban assets is down to 48.0%.

With an eye on the horizon, there are several reasons to believe that the premium between CBD and suburban assets will continue to fall. The first is simply arbitrage. Surely CBD assets deserve a price premium above non centrally located suburban assets. However, a 48% premium remains above the 20-year average (44%) and well above where it sat to start the last commercial real estate cycle (29%), suggesting that values may converge more yet.

Also consider that across all age groups and education levels, Americans are showing an increased preference for suburban housing option over walkable, urban options, according to Pew Research Center.

Couple these above findings with the fact that the emergence of work from home has serious staying power beyond the end of the pandemic— a development that could favor suburban office assets as workers prove less willing to tolerate long commutes. According to Owl Lab’s 2021 State of Remote Work Report, 70% of respondents in its survey indicate a desire for a remote or hybrid setup post-pandemic. Moreover, 48% of respondents reported that if they were not given the option to work remotely after the pandemic, they would seek a new job. If workers are structurally less tied to urban offices post-pandemic, it presents an opportunity for suburban providers. According to recent reporting from the New York Times, several co-working providers have turned their attention to the suburbs, betting on rising aggregate demand for flexible space away from city centers.

Altogether, suburban office assets are coming off a strong year where asset prices have surged (up 15.6% year-over-year through October). Even still, suburban office assets have the wind at their back heading into 2022 with what appears to be a multi-year renaissance ahead.


Apartment Cap Rates Will Do the Unthinkable: Rise

If death and taxes are the first two certainties of life, over more than the past decade, declining cap rates across the multifamily sector was surely a close third. According to a Chandan Economics analysis of Real Capital Analytics data, apartment cap rates started to compress post-Great Financial Crisis on a year-over-year basis beginning in Q2 2010. In the 46 elapsed quarters between then and Q3 2021, apartment cap rates fell a total of 43 times. Nevertheless, there is growing evidence to think that 2022 may be the year that apartment cap rates start to reverse from their all-time lows— even if only marginally.

Understandably, rising cap rates are not something that lands softly on the ears of operators. However, here, the why is more important than the what, and rising apartment cap rates may be good news for operators this time around—even for those currently controlling assets.

A key feature of this forecast is that rent inflation will continue to surge in 2022. Moreover, the team at Chandan Economics expects that rent inflation will exceed the pace of rising asset valuations. Historically, there is a time lag between rising asset valuations and rent inflation, meaning that if 2021 was a banner year for asset prices, rents could see a catch-up period in 2022. According to RealPage Analytics, this rent surge is already well underway, and momentum is holding up as we reach the end of the calendar year. Functionally, if rent inflation does outpace asset value inflation in the year ahead, there would be more net operating income for every dollar of asset value, causing upward pressure on cap rates.

Beyond strengthening net operating incomes, the Federal Reserve is the other macroeconomic elephant in the room that will have the power to move capital markets globally, including domestic cap rates. As of December 2021, implied probabilities on options contracts indicate that the market expects at least one rate-hike by mid-2022. Going further, most market participants expect the fed raising rates at least three times by the end of 2022. If market interest rates are on their way up, minimum investor yields on real estate assets will directionally follow.

Certainly, the reliability of fundamentals in the US rental housing sector will continue to attract capital, especially from investors who are looking for an asset that frequently resets its cashflows, offering inflation risk protection. The incoming flow of new buyers into the multifamily space seeking hedges on inflation should offer a counterweight, applying downward pressure on cap rates. Nevertheless, the balance of factors in the year ahead favors more upside pressure on cap rates than down.


Tight Labor Markets: Not New, Not Going Away

As you’ve probably heard, nobody wants to work anymore. Of course, while this broad stroke assessment is a response to a very real labor shortage, the prognosis is sorely misguided. There were still more than five million people out of work collecting unemployment benefits in early 2021— a considerable improvement from the 23 million recorded in spring 2020, though still nearly three times higher than prepandemic normality. It was around this time that most “nobody wants to work anymore” narratives got their beginnings, and at least there was some data to point to that suggested workers were taking their time coming off the sidelines. Now, with continuing unemployment benefits falling below 2 million claims through the end of November, the theory has lost some of the meat on the bone.

Nevertheless, labor markets remain exceptionally tight, and hiring managers are competing for talent in ways not seen in generations. According to the Bureau of Labor Statistics, wages for production and nonsupervisory employees are up by 5.9% in November from a year earlier— the highest rate since 1982.

However, what is often missed is that the labor market gradually tightened since the end of the Great Recession, and pressures were already reaching a boiling point before the pandemic. Before the GFC, a time that labor markets were also very tight, there were 0.7 job openings for every unemployed worker. Fast forward to the full year before the pandemic, and the ratio of openings to unemployed workers plateaued at a significantly higher 1.2. Now, as of the October 2021 Job Openings and Labor Turnover Survey (released in December), there are 1.5 job openings for every person who is classified as unemployed—a new and jarring all-time high.

Another piece of the puzzle to consider is that employers are not just having a hard time finding workers— they have even a tougher time finding qualified workers. According to the National Federation of Independent Business, nearly 60% of small business owners report receiving few or no qualified applicants for available positions, a pattern that continued to get worse over the past decade. Altogether, these data paint a picture of a labor shortage that is structural and unlikely to correct itself over the short term.

What a persistently tight labor market means for real estate is twofold. First, and the most obvious, a scarcity of availability of workers could leave critical parts of the commercial real estate sector understaffed. Most concerningly, this is already observable in the construction industry. As of the September 2021 NMHC Construction Survey, 88% of respondents reported being impacted by labor availability. Secondly, tight labor markets are transmissions for increases in wage inflation and general inflation. Sustained high inflation would have implications for both rents and interest rates across all commercial real estate sectors.


While the scope of uncertainty has undoubtedly shrunk over the past year, it is not to say that we have returned to normal. At the time of this writing, the omicron variant appears to be more bark than bite, but its rapid spread and ability to evade established immune responses highlights a continued risk heading into 2022, especially if new variants are detected that are more bite than bark.

The interconnection between supply chain shortages, labor shortages, and inflation are all contributing to a unique moment in economic history—one that is surely giving central bankers cause for restless nights.

All else equal, commercial real estate remains entrenched and a period significant change. With shifting patterns of where people live, how they shop, and how they work, updates to how we use our built environments are a natural evolution.

May this piece serve you as a theoretical model in the year ahead, but head the timeless advice of George Box in the process: “all models are wrong, but some are useful.”


® SVN International Corp. (SVNIC), a full-service commercial real estate franchisor of the SVN® brand, is one of the industry’s most recognized names based on the annual Lipsey Top Brand Survey. With nearly 200 locations serving 500 markets, SVN provides sales, leasing, corporate services and property management services to clients across the globe. SVN Advisors also represent clients in auction services, corporate real estate, distressed properties, golf & resort, hospitality, industrial, investment services, land, medical, multifamily, office, retail, self-storage and single tenant investments. All SVN offices are independently owned and operated. For more information, visit www.svn.com/

Featured topics:

  • Inflation
  • Holiday Spending
  • Consumer Sentiment
  • Eclipsing Pandemic Benefits
  • Apartment Market Activity
  • Adaptive Reuse
  • VTS national Office Demand Index (VODI)
  • Hiring Difficulties Abating
  • Job Openings and Labor Turnover Survey (JOLTS)
  • Home Prices and Property Taxes

Commercial Real Estate Economic Update 12.17.21 – (Download Full Report- PDF)


• The Consumer Price Index increased by 6.8% year-over-year through November 2021, the largest annual increase since June 1982. Prices climbed on a seasonally adjusted 0.8% month-over-month, 10 basis points lower than October’s increase.

• Following a recent trend, broad price increases across sectors have pushed the CPI up. Core-CPI, a slimmed-down measure that removes food and energy prices from the index calculation, increased by 4.9% year-over-year and 0.5% from October.

• Used vehicles continue to be a leading component of the inflation picture, with prices rising by 2.5% month-over-month and 31.4% since November 2020. Apparel prices also saw a notable increase, rising by 1.3% during the month.

• Among the non-core items, gasoline continues to fuel inflation rising by 6.1% in the month and a jarring 58.1% year-over-year. Energy commodities climbed by 5.9% from October and 57.5% year-over-year. Food prices also continue to feel the pressure, climbing by 0.7% in the month and 6.1% year-over-year.


• After a more modest-than-expected Black Friday and Cyber Week, retailers are grappling with a new normal where consumers spend less money during the holiday season and spread their spending across several months.

• Adobe Analytics reported that Black Friday retail sales dipped to $8.9 billion in 2021, down from $9 billion in 2020. Forecasters still predict a strong holiday season, hopeful that the early-season drop-off could be made up as the December holidays approach, but broader consumer spending trends may dampen the outcome.

• An analysis by Joseph Mayans of Advantage Economics shows that retail sales during the January and October months this year shot up by 15% compared to last year, dwarfing previously observed annual increases. From 2015 to 2020, sales during these holiday months increased by an average of 4.1% each year, peaking at 6% in 2020. The large increase in 2021 may signal that consumers no longer value the discounted holiday shopping season as they once did, and retailers may have to retool their strategies moving forward.


• Consumer sentiment rose slightly in December, with the index rising to 70.4, a 4.5% gain from the month before, according to preliminary results from the University of Michigan.

• December’s level is -12.8% below December 2020’s reading but is roughly in line with the levels observed between July-October.

• According to the analysis, there was a large disparity between the monthly gains among higher-income and lower-income households. The lower third of the income distribution saw a 23.6% increase in sentiment compared to a reduction of -3.8% among the middle third and -4.3% among the top third. Large swings such as the one over-served this month among the lower-third are unusual, according to the survey’s research team, and the last time such a jump occurred was in June of 1980, where sentiment among the lower-third jumped by 29.2% in the month.

• In the survey, respondents were asked whether inflation or unemployment was their most pertinent concern. 76% of respondents indicated that inflation was their primary concern, while just 21% said unemployment. According to the report, inflation uncertainty outpaced employment uncertainty across all regions, ages, and income groups.


• While several pandemic-era benefits, including the federal eviction moratorium and extended unemployment benefits, ended in recent months, there are a few that remain in place. Most notably are the student loan interest freeze and the extended child tax benefits, both of which are slated to end in January.

• Discussions around these stimulus measures have picked up in recent days as their end dates approach, and lawmakers look to pass extensions, according to reporting by Bloomberg. Senate majority leader Chuck Schumer, along with several key democrats in congress, recently called on President Biden to extend the pause on student loan payments until U.S. employment returns to pre-pandemic levels. The President’s initial indications are that he will not be supporting an extension.

• Proponents of the extension referenced a study by the Roosevelt Institute that estimates that resuming student loan payments would take $85 billion a year out of household budgets of roughly 18 million borrowers.

• Meanwhile, an extension of the pandemic-era child tax credit expansion is contained in a provision of the House-passed Built Back Better bill. However, the package is currently stuck in the Senate, facing an uncertain outcome and timing.


• Apartment market occupancy reached a new all-time high of 97.5% in November, which sits 250 points above the long-run average of 95%, according to Real Page.

• In a typical year, leasing activity rises in the spring and falls as the winter months approach, but as observed in other commercial real estate sectors, seasonal trends have been thrown off track by COVID-19.

• Effective rent prices rose 0.4% month-over-month in November, the smallest increase since January. However, in previous years, the market typically sees price cuts during the fourth quarter, so even a modest increase in rents is significant. • Nationwide, out of the 150 largest metros, 104 of them saw price increases during the month. The largest monthly increases were seen in Naples, Cape Coral, North Port/Sarasota, and West Palm Beach— all Florida metros. The largest annual increases were in West Palm Beach, Tampa, and Phoenix.


• The pandemic’s influence on real estate markets over the past 19 months is driving new demand for adaptive reuse projects, where offices, factories, and other commercial buildings with high vacancies are being repurposed into apartments to meet ever-increasing housing needs.

• According to an analysis by RentCafe using data from Yardi Matrix, apartment conversions skyrocketed in 2021 compared to previous years. An estimated 20,122 apartment units were converted this year from factories, hotels, or offices— a 70% increase from 2019.

• Adaptive reuse began to gain notoriety following the Great Financial Crisis, and the market experienced steady growth throughout the recovery cycle, climbing from just 5,271 converted apartments in 2010 to a pre-pandemic peak of 15,480 conversions in 2017. While the market saw some reduction in 2018-2019, the pandemic has inserted new life into the sector as office owners attempt to mitigate the impact of work from home and lower office demand.

• In its early stages, most adaptive reuse properties were converted from hotels and factories rather than offices. In 2010, hotels accounted for 38.3% of all conversions while factories accounted for 31.3%, and offices accounted for 30.3%. Throughout the decade, the trend started to shift. In 2021, 54.1% of all conversions were from office properties, 25.0% were from factories, and just 20.7% were from hotels.


• The VTS national Office Demand Index (VODI) fell to 61 in October, its second consecutive monthly decline and a fall of 26 points from its August peak of 87. The metric represents current office demand as a percentage of a 2018-2019 benchmark to help quantify the effects of COVID-19 on the sector.

• The October decline runs counter to the seasonality that defined the sector pre-pandemic when demand would rise in the late summer and early fall. According to VTS, the index averaged an increase of 7.7% in October of 2018 and 2019.

• Notably, the decline in October came amid relatively strong job gains, with office-using employment in VODI’s seven core markets increasing by 5.8% on an annualized basis

• With the VODI appearing to have hit a peak in August, the analysis suggests that much of the post vaccination pent-up demand in the sector has likely been absorbed, and demand is now receding towards a new post-COVID equilibrium. • On the metro level, each of the VODI’s seven core markets saw declines in October. Seattle saw the steepest decline in demand, falling 31% from its September level. San Francisco and Boston also saw significant reductions, falling by 29% and 26%, respectively


• Recent data from the Census Bureau’s Small Business Pulse Survey signals that hiring difficulties has diminished in recent weeks. The experimental survey, which has been conducted weekly since the beginning of the pandemic, first began asking firms about hiring sentiment in the August 16th-22nd, 2021 survey.

• At the time, 34.7% of firms were reporting hiring difficulties, and the share stayed above 33% through the week ending on November 21st. During the week of November 22nd-28th, the share of firms experiencing hiring difficulties fell to 32.6% before falling again to 31.7% in the most recent survey.

• Accommodation and food services continue to face strong headwinds in their hiring efforts, with 58% of respondents indicating difficulty finding qualified candidates during the most recent survey period. However, this is a fall from the 69% that reported hiring difficulties when the survey question was first asked.

• The Utilities and Finance sectors have seen the most muted impact from tight labor market conditions, with just 10.4% and 11.7% of employers in the sector reporting hiring difficulties. However, while conditions in the Finance sector have improved over the lifetime of the survey question, hiring difficulties in the Utilities sector have increased from the initial 8.7% recorded in August.


• There were 11 million openings in the U.S. as of October 31st, the latest date of availability, according to the Bureau of Labor Statistics. Job openings continue to be at previously unheard-of levels, with the October reading roughly in line with the record reached this past July.

• Hires were little changed at 6.5 million while total separations declined to 5.9 million. Meanwhile, the quits rate saw a reduction from its September high, decreasing to 2.8%. • Taken together, employers continue to face difficulties on the hiring front despite record job openings across the economy. Regionally, there are little to no observable differences in hiring activity, while on the sector level, lower-waged, in-person positions continue to struggle the most.

• In the 12 months ending in October 2021, there were a total of 73.8 million hires and 68.1 million separations, a net change of +5.7 million.


• A recent analysis by Fitch Ratings attempts to forecast which states are poised to benefit from home price growth in the near and medium-term compared to others. The ranking methodology looks at a combination of home price growth and property tax revenue increases from February 2020 to June 2021 and the observed correlation between the two over this period.

• Hawaii rises to the top of the report’s rankings, with an 85% correlation between home prices and property taxes. From February 2020 to June 2021, the average home price in the Aloha State increased by 22%, while property taxes as a percent of total revenues rose by 54%.

• Connecticut ranked 2nd, with a just 67% correlation between home prices and tax revenues but a 67% increase in property taxes as a share of total revenues. Florida ranked 3rd, with just a 42% increase in property taxes as a share of revenues but a 92% correlation between home price increases and tax revenue increases.

• Alaska was left out in the cold as it ranked last, reporting just an 11% increase in home prices and a 4% correlation between home price increase and tax revenues. Maryland and Nebraska were close behind, each seeing a 16% increase in home prices but only a 1% correlation between home prices and tax revenues.


• (1) https://www.bls.gov/cpi/

• (2) https://business.adobe.com/resources/holiday-shopping-report.html

• (2) https://www.linkedin.com/posts/joseph-mayans_economics-economy-consumerspendingactivity-6874508790784397312-PWgF/

• (3) http://www.sca.isr.umich.edu/

• (4) https://www.bloomberg.com/news/articles/2021-12-09/fiscal-cliff-nears-for-u-s-families-aspandemic-benefits-fade?srnd=economics-vp

• (5) https://www.realpage.com/analytics/u-s-apartment-market-continues-tighten/

• (6) https://www.rentcafe.com/blog/rental-market/market-snapshots/adaptive-reuseapartments-2021/

• (7) https://vts.drift.click/november-vodi

• (8) https://www.census.gov/data/experimental-data-products/small-business-pulse-survey.html

• (9) https://www.bls.gov/jlt/

• (10) https://www.fitchratings.com/research/us-public-finance/home-price-increases-have-variedeffect-on-property-taxes-03-12-2021

©2021 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

Featured topics:

  • Omicron Market Volatility
  • Commercial Property Prices
  • Commercial Property Prices (By Property Type)
  • Existing Home Sales
  • Fiscal Impact Measure
  • Federal Reserve November Meeting
  • Self-Storage Market Growth
  • GDP Now
  • Thanksgiving Travel
  • The Great Retirement

Commercial real Estate Economic Update 12.3.2021 – (Download Full Report- PDF)


• Markets were roiled late last week in reaction to the World Health Organization’s announcement of a newly discovered COVID-19 strain in South Africa. Dubbed the “Omicron variant,” public health officials signaled their concerns about its potential to spread even amongst vaccinated populations, leading to heightened uncertainty in financial markets.

• On Monday, Nov. 29th, Nasdaq, the S&P 500, and Treasury Yields all climbed following Friday’s bearish activity, signaling an easing of initial fears surrounding the variant.

• Friday’s (Nov. 26th) news caused investors to push back their expected date for a Fed rate hike. According to data compiled by the Chicago Mercantile Exchange, traders were pricing in just a 53.3% chance of at least one rate hike between now and June 2022, down from 82.1% on November 24th.

• In an interview over the weekend, Atlanta Fed Chair and FOMC voting member Rafeal Bostic attempted to contextualize the risk to economic growth, stating that momentum within the economy should prevent a potential new wave from knocking the economy off its axes. Bostic signaled it could still be “reasonable” for the committee to still begin tapering its asset purchases by the end of this year.


• According to the Real Capital Analytics commercial property price index (CPPI), commercial property prices continue to grow at a record clip. Measured through October, asset prices are up 15.9% year-over-year, the highest annual appreciation rate on record. Moreover, commercial prices are up 1.7% month-over-month.

• After initially coming out of the gate slow into the pandemic recovery, commercial real estate assets in Major Metropolitan markets are beginning to see some significant pricing momentum. Measured year-over-year, CRE assets in Gateway markets are up 10.6%.

• Meanwhile, CRE assets located in Non-Major Metropolitan markets continue to outperform. Annual price growth in these markets totals 17.6% through October— the highest rate of appreciation for the series on record.


• According to Real Capital Analytics Industrial assets maintained their darling of the pandemic status through October 2021, posting an annual price appreciate rate of 18.9%— a record high for the property type and the best mark of all assert types. Moreover, Industrial’s month-over-month price growth rate totaled 1.8%, once again besting all other property types.

• Apartment assets followed closely behind, notching year-over-year gains of 16.7% through October. Apartment assets have now recorded consecutive months of new all-time highs. On a month-over-month basis, Apartment prices are up 1.4%.

• Retail assets posted the next best year-over-year growth rate of the core-four property types, gaining 14.2% over the past twelve months. Measured month-over-month, retail prices are by 1.3% through October.

• Overall, office price growth sits at 1.0% month-over-month and 13.7% year-over-year. However, the performance difference between Central Business District (CBD) and Suburban Office assets is stark. CBD located Office assets are posting price growth rate totals of just 0.9% through October 2021— a paltry figure, but one that at least signals a stopping of the bleeding. Meanwhile, Suburban Office assets are up year-over-year by a robust 15.6%.


• Existing home sales climbed by 0.8% in October to a seasonally adjusted rate of 6.34 million units, according to the according to the latest release from the National Association of Realtors. Sales fell 5.8% from one year ago. Meanwhile, median existing-home sales prices increased by 13.0% year-over-year to $354,000.

• The continued growth in sales is encouraging given the low inventory environment nudging up against record prices. According to NAR economist Lawrence Yun, rising apartment rents may be pushing some consumers into buying homes more quickly to hedge against inflation.

• Regionally, existing-home sales in the Midwest were the largest contributor to growth, rising by 4.2% in October from a month earlier, followed by the South which saw sales rise by 0.4%. Sales in the West held steady while sales in the Northeast fell by 2.6%.

• First-time home buyers accounted for 29% of sales in October, up from 28% the month before by down 32% from October 2020. • Total housing inventory at the end of the month totaled 1.25 million units, down -0.8% from September and down -12.0% year-over-year.


• Data taken from Brooking’s Fiscal Impact Measure, a gauge of the impact of federal, state, and local policy on economic growth, shows that fiscal policy reduced US GDP growth by an annualized -2.3% in Q3 following several quarters of policy support stemming from pandemic response measures.

• According to the report, the drag on growth in the third quarter was produced by a decline in federal government transfers as unemployment benefits and other stimulus measures were reduced over the past few months. Reduced purchases by state and local governments also contributed to the decline.

• Researchers predict that fiscal policy will have an increased drag on GDP growth in the coming years, with negative pressures peaking at -3.23% in Q2 2022 before recovering back to a more modest friction of -1.22% by Q3 2023. The outlook considers the declining impact of stimuli, reopening efforts, as well as the recent boost in spending from the bipartisan infrastructure bill, which will only modestly offset negative effects.


• Minutes from the FOMC’s November meeting show that in their discussions of policy actions, members continued to see progress in economic activity and employment but conveyed less certainty about the path of inflation.

• During the meeting, which took place on November 2nd and 3rd, members discussed broad increases in sovereign yields on securities of various lengths, reflecting the market’s demand for additional inflation compensation. Market pricing also indicated that while expectations of reduced asset purchases coalesced closer to the committee’s stated goals, investors had not yet revised their expectations towards tighter interest rate policy in the coming years.

• At the time of the meeting, recently released GDP figures showed a slowing of US economic output, while labor market conditions improved. This strengthened the committee’s view that areas of the economy most impacted by the virus were showing signs of strength, but that the uncertainty caused by the delta variant this summer had reduced the speed of growth.

• In their review of inflation and inflation expectations, the committee noted the elevated 4.4% year-over-year PCE price inflation measured in September but held their view that mostly transitory factors were contributing to the pressures. The committee restated its intentions to allow inflation to rise modestly above their 2% long-run target for a short but unspecified time to make up for previous periods of low inflation. The committee sees this as essential in anchoring future inflation expectations around their 2% target.


• The self-storage sector is expected to grow by 2.0% from 2021 to 2026 according to the newest analysis by Mordor Intelligence.

• Self-storage emerged as one of the more resilient commercial real estate sectors during the pandemic, seeing a boost from downsizing and relocation activity. Similar to pandemic impacts observed throughout other CRE sectors, self-storage saw an acceleration of growth that was already underway pre-pandemic, with construction spending in the sector climbing by 584% from January 2015 to January 2020, according to the Census Bureau. Growth in e-commerce has also boosted the prospects of the sector as pick-up and delivery operations increase demand for space. Additionally, structural changes to the office and retail sectors, as well as service demand trends such as climate-controlled spaces, are expected to increase demand for selfstorage in the coming years.


• The Federal Reserve of Atlanta’s GDPNow forecast recently revised its fourth quarter 2021 estimate up to 8.6 %, a 20 basis points rise from its last projection. The revision reflected the impact of new data from National Association of Realtors and the US Census Bureau detailing private investment activity and inventories.

• In addition to the components that had a positive impact on the revision, changes to personal consumption had a negative impact with PCE growth declining from 9.2% to 7.9%.

• Notably, the update released on November 24th did not reflect the expected impact of the Omicron coronavirus variant, which has roiled markets in recent days. The next projection is due out on December 1st, and while that may be too soon to observe the variant’s impact on economic activity, it may begin to reflect its influence on market-based growth and inflation expectations.


• Sunday November 28th registered the highest number of air-travelers in the US in a single day since the start of the COVID-19 pandemic, according to screening data from the TSA.

• Roughly 2.45 million passengers flew commercial airlines on the Sunday following the Thanksgiving holiday, a significant uptick from the 1.17 million that traveled on the same day in 2020. While most stay-at-home orders and domestic travel restrictions were lifted by time holiday travel began last year, the nation had not yet begun its vaccine rollout, which has helped reduce consumer uncertainty in recent months.

• While encouraging, Sunday’s total is below the 2.88 million passengers screened in 2019, which represented a record-high since the agency was established more than 20 years ago.

• While travel is expected to rise further during the December holidays, renewed uncertainty surrounding the Omicron variant is expected to dampen the outlook, at least modestly.


• While stories of a “Great Resignation” amongst younger employees quitting their jobs in recent months has received deserved attention, an increase in retirements may be of greater consequence to future labor market supply.

• According to data by Pew Research, through Q3 2021 an estimated 50.3% of US adults 55 and older are retired, up from 48.1% in Q3 2019.

• According to historical data, between 2008 and 2019, the population of retired people ages 55 and older grew by roughly 1 million per year while in the past two years the total has increased by 3.5 million, representing a 75% increase in the average growth rate. • Notably, recent recessions have been followed by declines in retirement rates unlike the COVID downturn. From 2007 to 2010, which included the period of the Great Financial Crisis, the population of 55 and older retirees declined from 50% to 48%.

• Researchers suspect that unlike during previous recessions when the value of financial assets such as 401ks, as well as home prices, declined— pulling down household wealth along with it, the COVID recession saw asset prices increase, allowing households to cash in on equity gains.


• https://finance.yahoo.com/news/stock-selloff-set-continue-asia-215239154.html (1) • https://app.rcanalytics.com/#/trends/cppi (3)

• https://www.nar.realtor/newsroom/housing-market-reaches-record-high-home-price-and-gains-inmarch (4)

• https://www.brookings.edu/interactives/hutchins-center-fiscal-impact-measure/ (5)

• https://www.federalreserve.gov/monetarypolicy/fomcminutes20211103.htm (6)

• https://www.reportlinker.com/p06184963/United-States-Self-Storage-Market-Growth-TrendsCOVID-19-Impact-and-Forecasts.html?utm_source=GNW (7)

• https://www.atlantafed.org/cqer/research/gdpnow?panel=3 (8)

• https://www.tsa.gov/coronavirus/passenger-throughput (9)

• https://www.pewresearch.org/fact-tank/2021/11/04/amid-the-pandemic-a-rising-share-of-older-us-adults-are-now-retired/ (10)

©2021 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

Featured topics:

  • Emerging Trends In Real Estate
  • FHFA Multifamily Volume Caps: 2022
  • Apartment Rent Growth
  • Consumer Price Index
  • Office Demand
  • CMBS Delinquencies
  • NMHC Quarterly Survey
  • Senior Loan Officer Opinion Survey
  • Zoning Reform: A Case Study
  • FOMC November Meeting

Commercial Real Estate Economic Update_11.12.21 – (Download Full Report- PDF)


• In PwC’s report on Emerging Trends in Real Estate for 2022, respondents highlighted a range of influential factors likely to impact real estate outcomes over the next year, including climate change, remote work, investor capital, prop-tech, and of course, COVID-19.

• The report notes the impact of extreme weather events in 2021 on the commercial real estate sector, including massive flooding that occurred in the New York metro recently and persistent wildfire risk in the West. 82% of respondents consider environmental, social, governance (ESG) elements in their operational investment decisions, with a slight majority indicating that these actions are for risk management, while a slight minority indicate it is for tenant and investor requirements.

• The future of remote work also took center stage. 20% of workdays are expected to be conducted outside of the workplace compared to just 5% pre-pandemic. While most CEOs have signaled their desire for employees to return to the office, an attitude shift has taken place, with more employers offering the perk in various forms and workers in better positions to accommodate remote-work setups.

• Investment capital has been flowing in droves so far throughout 2021, but the evolution of demand trends and interest rates over the next year may change that. So far, investors see the demand as remaining strong, but the ability for lenders and fund managers to remain disciplined in a tightening market will put things to the test.

• Property Technology (prop-tech) and digital advances also were noted as significant factors in the report, with virtual tours, automation, and friction-free leasing processes helping transform the sector during the pandemic.

• COVID-19 remained a concern on the minds of investors and the least predictable. The pandemic impacted the four main commercial real estate sectors in varying ways, but the path of case counts and vaccinations remains a catalyst to reducing investor uncertainty.


• Last month the Federal Housing Finance Agency (FHFA) established a new volume cap for Fannie Mae’s and Freddie Mac’s Multifamily lending arms, increasing the loan purchase cap from $70 billion each in 2021 to $78 billion each in 2022 ($156 billion combined).

• The updated cap retains the requirement that at least 50% of all loan purchases be mission-driven lending but increases the affordable housing requirement from 20% of loans to 25% of loans. The FHFA considers housing to be affordable when it can be afforded by residents earning 60% or less of their area’s median income.

• In Q3 2021, Fannie’s new multifamily business volume totaled $16.4 billion, and $48.8 billion was borrowed during the first nine months of the year.


• Effective asking rents for move-in leases increased by 0.6% in October, according to the latest data by Real Page.

• October’s growth is the weakest increase recorded since February and comes amid a seasonal decline in U.S. leasing activity to start the Fall, which has calmed upward pressure on rent prices.

• Sun Belt metros continue to be dominant markets for growth, particularly in Florida, which was home to 9 of the 12 largest monthly metro-level increases in October, with Naples, FL rising to the top spot.

• West Palm Beach, Phoenix, and Tampa experienced the largest annual increase through October, with effective rents climbing by 27.0%, 26.7%, and 25.8%, respectively. The Minneapolis metro area experienced the most tepid annual climb of the top-50 metros, rising by just 4.1% year-over-year.


• The Consumer Price Index (CPI) rose by 6.2% on a year-over-year basis through October and is up 0.9% from September’s level, according to the latest release by the BLS. October’s reading is the largest annual increase in the inflation gauge since December 1991.

• Prices increased across the board, but energy prices provided a significant amount of upward pressure on the overall rate, with fuel oil prices shooting up 12.3% along with gasoline prices, which rose by 6.1%. Electricity prices also saw a significant uptick in October, registering their largest one-month increase since March of 2014.

• Food prices, considered a non-core item of the index like energy prices, also continue to face higher than normal price pressures, rising by 5.3% on the year. More concerningly, food inflation has accelerated in recent months, reaching month-over-month growth of 0.9% in October, which matches its September rate and is more than double its August reading. Further, consumers are seeing prices climb faster in the grocery store aisles than on take-out menus—the food-at-home index rose 20 bps faster than the food-away-from-home index in October, after more than doubling its growth in September.

• CPI less food-and-energy, a less volatile measure that is more focused on by policymakers that monitor inflation, also saw a large increase, rising by 4.6% year-over-year. Used cars and trucks continue to be the largest contributor to the slimmed-down measure, registering a 26.4% increase since last October. New Vehicles meanwhile are up by 8.4% year-over-year. Transportation services and Shelter costs rose by 4.5% and 3.5%, respectively.


• New office space demand appears to be moderating from its recovery-driven rebound that took place throughout this year, with the VTS Office Demand Index (VODI) falling 14 points in September from 87 in August.

• While in normal years, office space demand faces a degree of seasonality, the pandemic threw some of these patterns off. Many planned 2020 transactions were delayed while reopening demand caused its own seasonally agonistic surge. As a result, last month’s decline in office space demand may indicate the cycle is reverting to seasonality.

• According to an analysis accompanying this month’s report, researchers speculate that several large companies shifted back into the office market sooner to meet their return-to-office goals, resulting in a late-summer surge at the expense of the fall season.

• More remote-friendly cities like San Francisco, Washington, and Boston faced declines during the month, while less remote-friendly cities such as New York, Los Angeles, and Chicago all sit above 80% of their pre-pandemic levels. VTS uses its own internal metric to determine each city’s exposure to remote work.


• CMBS Delinquencies fell to 4.61% in October, a decline of 64 bps from September and its steepest improvement since earlier this year, according to the latest report by Trepp. Following two large increases in May and June of 2020, where delinquencies reached a pandemic peak of 10.32%, the rate has now receded for 16 consecutive months. On a year-over-year basis, overall delinquencies are down by 3.67%.

• The Lodging sector, which faced the strongest pandemic-induced headwinds, continues to post the highest CMBS delinquency rates of all sectors, though it has fallen considerably over the past year. In October, 10.04% of loans were at least 30-days delinquent, down from 19.43% in October 2020.

• Industrial still leads the pack with a CMBS delinquency rate of 0.53%, 6 bps below its September level. The Multifamily sector takes the second spot, with a rate of 1.70%, indicative of the swell of demand in the housing market throughout the economic recovery. Multifamily CMBS delinquencies are down by 25 bps from September and down 125 bps from one year ago.

• The nationwide Office recovery has helped push down delinquencies in the sector, dropping from 2.95% in October 2020 to 1.80% in the most recent reading.

• Retail loans charted a delinquency rate of 8.39% in October, down 136 bps from last month and 594 bps year-over-year.


• On October 28th, the National Multifamily Housing Coalition (NMHC) released its Quarterly Survey of Apartment Conditions for the third quarter of 2021. The survey’s four indices, where a measure above 50 indicates expansionary conditions from the previous quarter and one below 50 indicates contractionary conditions, all continued to show positive momentum in Q3.

• The Market Tightness index registered its second-highest level since tracking began in Q3 2017. The market tightness index registered its largest increase on record in Q2 2021 and its third-highest in Q1.

• Sales volume also continued to grow, with the index registering consecutive quarterly readings of 79, its highest increases on record. It is also the third quarter in a row that each of the market tightness, sales volume, and equity indices all sat in expansion territory.

• Debt financing conditions were weaker, registering a 48 in Q3. However, a majority of respondents indicated that conditions were unchanged from a quarter ago. Responses to the debt financing survey historically experience more volatile swings from quarter to quarter, and Q3’s reading follows an expansion of 71 in Q2.


• The October Senior Loan Officer Opinion Survey produced by the Federal Reserve’s Board of Governors signaled that underwriting standards eased and demand intensified for commercial and industrial loans in the third quarter. Banks expect stronger demand for C&I loans to continue to build over the next six months for firms of all sizes due to a stronger outlook for investment and an expected increase in consumer financing needs.

• Standards were reported to be easing for small, medium, and large firms alike, though demand from smaller firms was relatively unchanged while demand from medium and large firms increased.

• Commercial real estate loans of all sectors showed easing standards. Both Multifamily loans and those secured by nonfarm nonresidential properties exhibited particularly strong demand. Meanwhile, borrowing for construction projects remained relatively unchanged.

• Standards for loans to households also eased but showed weakening demand. Credit-card, auto, and other consumer loans also saw standards ease.


• A November 2021 working paper conducted by the National Bureau of Economic Research attempts to estimate the economic value of zoning reforms passed and implemented in Sao Paulo, Brazil, in 2016. Their analysis finds that multifamily permit filing had increased in blocks with higher allowable densities while average shelter prices receded.

• Utilizing these findings, the researchers developed a framework for analyzing how such activity could impact the national housing stock. Their model estimates that new supply from the reforms would produce a 2.2% increase in the total housing stock and reduce prices by an average of 0.5%.

• The 2016 reforms established new maximum built-area-ratios (BAR) for each city block in Sao Paulo, and areas that received larger BAR increases from the reform tallied higher construction growth and steeper price declines. The largest construction increases and price declines were 37.5% and -6.2%, respectively.

• On the flip side, congestion costs from added density reduced welfare gains by 1.3%. Additionally, college-educated and higher-income households gained the most value from reforms, as families situated in more expensive suburbs were better positioned to take advantage of relatively cheaper urban options that offered comparable amenities. Lower-income families benefited from the added quality and lower prices, but to a lower extent.


• In their statement released on November 3rd, the FOMC held their view that vaccinations and policy support have continued to strengthen the economic recovery and that inflation, while elevated, is the result of supply and demand conditions that they expect to be transitory.

• The committee highlighted the summer’s rise in COVID-19 cases as contributing to a slowdown in the recovery and the economy’s reopening efforts as a catalyst to inflationary conditions. Progress on the coronavirus front remains the Fed’s primary gauge of the economic recovery’s path, and the committee has remained committed to allowing inflation to run hotter than 2% for some period in order to offset previous periods of low inflation.

• Beginning in December 2020, the committee began reducing its monthly asset purchases by a net $15 billion but has indicated that it will increase holdings by $105 billion beginning this month, followed by an increase of $90 billion in December.


https://www.pwc.com/us/en/industries/asset-wealth-management/real-estate/emerging-trendsin-real-estate.html (1)

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-2022-Multifamily-LoanPurchase-Caps-for-Fannie-Mae-and-Freddie-Mac.aspx (2)

https://www.realpage.com/analytics/u-s-apartment-monthly-rent-growth-slows-in-october/ (3)

https://www.bls.gov/cpi/ (4)

https://vts.drift.click/october-vodi (5)

https://www.trepp.com/trepptalk/cmbs-delinquency-rate-tumbles-in-october-rate-falls-below-5 (6)

https://www.nmhc.org/research-insight/quarterly-survey/2021/nmhc-quarterly-survey-ofapartment-conditions-october-2021/ (7)

https://www.federalreserve.gov/data/sloos/sloos-202110.htm (8)

https://www.nber.org/papers/w29440 (9)

https://www.federalreserve.gov/newsevents/pressreleases/monetary20211103a.htm (10)

©2021 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

Retail – Asset Class Report – August 2021

Retail Asset Class Report– (Download Full Report -PDF)


The consensus heading into 2020 was another rough year on the Retail sector’s horizon, and that was before a global pandemic made nonessential in-person shopping quite literally illegal for a period. As Americans sheltered indoors, everyday activities such as going to the grocery store were now weighed under a contagion risk analysis. Consumption that would have normally been completed in-person has quickly flowed into online orders. The e-commerce share of retail consumption has steadily risen for more than two decades, reaching 11.8% in Q1 2020.1

As the full effect of the lockdown reached a fever pitch in Q2, the share ballooned to 16.1%. While the share has come down to 14.0% through Q4, reflecting some natural reversion, the familiarity gained by consumers cannot be undone, and the pandemic has permanently accelerated some retail activity away from brick-and-mortar.

Of all the retailing subsets, no business model was more impacted in 2020 than food and beverage services. Brick-and-mortar retail (excluding food services) had already fully recovered to pre-COVID sales figures through the end of the year. Restaurants and bars, however, continue to struggle as restrictions on density, indoor permissiveness, and operating hours have all proved to be economic impediments. According to the Census Bureau’s Advance Retail Estimates for Food Services and Drinking Places, seasonally adjusted sales in February totaled $54.2B— down 17.0% year-over-year. Data provided by OpenTable, a restaurant reservation booking service, confirm that reservations remain down 37% through March 11th, 2021, as compared to a 2019 baseline.

According to Trepp, the delinquency rate on Retail CMBS has continued to improve in recent months but remains elevated. Through February 2021, the delinquency rate averaged 11.8%— down from 12.7% the month prior, though well above the 3.6% measured at the same point last year.

All else equal, 2021 should be a year of recovery in the Retail sector, especially as restrictions on density are further relaxed and the resumption of normalcy gains steam. Notwithstanding the short-term recovery, Retail remains in a period of secular reorganization, and the sector remains open to disruption for the foreseeable future.

Financial Performance


Transaction volumes sank so far in 2020 that they would have to look up to see rock-bottom. Deal volume fell by 25% in 2019 with $65.9B worth of assets changing hands, according to Real Capital Analytics. However, 2019 proved to just be the dress rehearsal, as volumes sank by another 43% in 2020, finishing the year with just $37.7B of total volume—the lowest level since 2010. Drugstores and Mall assets each recorded 14% increases in transaction activity, though the driving forces for each product type are very different. Drugstores benefited from their “essential” status and perceived safe-haven quality amid the pandemic. Malls, on the other hand, posted gains primarily due to the “hurdle effect.” In other words, because transaction volumes for Mall assets took a nosedive-descent of 89% in 2019, the resumption of some transaction activity was enough to post a positive gain. Big Box Retail assets posted the biggest drop-off in transaction activity between 2019 and 2020, falling by 62%.


Cap rates for Retail properties posted marginal declines in 2020. Through Q4 2020, cap rates are down 6 bps from Q3 and 20 bps from the same time last year.2 Anchored and Grocery Retail properties posted the largest cap rate declines in 2020, falling by 28 bps and 15 bps, respectively. On the other side of the spectrum, Big Box Retail assets and Urban Store Fronts notched the largest year-over-year cap rate increases, rising by 14 bps and 8 bps, respectively.3

Despite cap rates falling in the Retail sector, property valuations took a hit in 2020, falling by 6.7%.4 Taken together, these data indicate that property-level incomes saw significant weakness through the year, and that declining cap rates were not necessarily a welcome sign to asset owners. Retail Centers saw the most softening in asset prices in 2020, recording a steep 13.2% year-over-year decline.5 Unanchored Retail assets followed next, recording a 7.5% drop in value.6 Following a step up in transaction volume, pricing improved for both Drugstore and Mall assets on a price per square foot basis in 2020, rising by 4.1% and 2.6%, respectively.7



Markets across the Southeast have quietly maintained strong local Retail performance despite COVID’s unprecedented disruption. The relative permanence of temperate weather has made creative solutions, such as increased outdoor dining, more successful than similar attempts in cool-weather states. As novel as the experience of getting drinks with friends in 15-degree weather is, a glass of beer should never get colder on the table the longer it goes unconsumed. In a city like Greenville, SC, one of the Southeast’s blossoming culinary hubs, the temperature rarely ever approaches freezing.

“Greenville Retail has proven itself to be exceptionally resilient due to several factors,” says Alex Dmyterko, Managing Director of SVN | BlackStream. “First, the Upstate area has extremely strong job growth. Additionally, the jobs tend to be high income as the area has become one of the largest concentrations of engineers in the country. Lastly, [Greenville] has experienced a rapid influx of people moving from larger, northern cities as people seek perceived COVID-safety and a gentler way of life. This growth has resulted in strong retail and restaurant sales.”

A recent CoStar report notes that while the Raleigh and Charlotte metro areas have seen Retail foot traffic drop by roughly 25%, comparatively, the two markets are holding up exceedingly well— especially when compared to major-coastal markets where the foot traffic dip ranges from -40% to -60%. These data match well with reported asking rent growth, as Raleigh and Charlotte posted gains of 6.1% and 3.4%, respectively.8

Louisville, Kentucky, a market that has gained steam in recent years from an influx of regional tourism, posted a 0.3% drop in Retail vacancy while absorbing nearly 650k square feet of new inventory.9 Nearby Lexington, Kentucky, a metro connected to Louisville via the “Bourbon Trail,” has posted a 9.5% population growth between 2010 and 2019, is enjoying similar success.10

There was no state over the past decade that had a higher concentration of fast-growing metros than Florida. Between 2010 and 2019, a total of 16 Florida metros experienced residential population growth exceeding 10% for the decade.11

The next closest State was Texas, with 13 metro areas accomplishing the same feat. The rapid expansion of Sunshine State metros has led to more consumption dollars cycled through local communities and a greater need for Retail space. Within Greater Daytona Beach, a coastal market accessible to nearby-landlocked-Orlando, Retail performance has “exploded in the past 2+ years, thanks in part to development and planning of [over 20K] new homes West of Interstate-95 and many new multifamily projects that are filling up quickly,” says Carl Lentz, Managing Director of SVN | Alliance Commercial Real Estate Advisors. “National retailers have taken note and Retail developers have taken advantage by constructing many new Retail opportunities along the LPGA & I-95 corridor.”



The total value of all final sales of goods and services, investments, government expenditures, and net exports came out to a little more than $20.9T in 2020. After adjusting for inflation, 2020’s report card represents a 3.5% drop off from production and consumption levels measured in 2019.1

Of course, a marginal, single-digit percent change snapshot fails to capture the violent swings in economic activity recorded across quarters. In Q1 2020, while risks of a global pandemic were rising, the US economy seemingly continued along an autopilot-glide. It wasn’t until the last two weeks of the quarter that Times Square started to resemble the scenes out of a Stephen King novel.

For the quarter, annualized GDP growth came in at -5.0%, a harbinger of the pain to come. In the second quarter, a period defined by the worst days of the pandemic, the US economy shrank at a -31.4% annualized rate, the worst reading ever. In Q3, the resumption of some normalcy fueled the highest quarterly GDP figure on record at 33.4%. As the cold weather started to settle in during Q4, growth again started to cool. For the final period of Q4, the US economy expanded at just a 4.3% annualized rate.

In January 2020, the Congressional Budget Office released estimates for its expectations of growth in the then year ahead.2 The $22.1T forecast serves as an estimate of where the US economy would have finished the year had the pandemic not reached our shores. The shortfall between actual and forecasted GDP totaled $1.2T. While these figures may sound abstract, understanding them in terms of average wealth lost per person makes the drop off more appreciable. On average, every US citizen is $3,560.06 worse off through the end of 2020 compared to a version of the past year where COVID did not exist.

With serotonin levels now surely in low supply, there is, at least, significant hope that 2021 will be a year of earnest recovery. As of the March WSJ Economic Forecasting Survey, on average, leading economists expect the US economy to grow by 6.0%. If reality ends up matching expectations, 2021 will mark the fastest annual growth since 1984— the first non-Orwellian reference to that year in some time.


If the US economy were a human body, the labor market would be the beating heart— and in 2020, even the cardiologists were complaining of chest pain. Between February and April, the civilian unemployment rate went from an all-time low of 3.5% to a stratospheric, post- Great Depression high of 14.8%. The national lockdown mimicked a labor market trajectory only previously observed at local levels following natural disasters. Between December 2007 and the start of June 2009, the official start and end dates of the Great Recession, a little more than 37 million people filed for first-time jobless benefits; in 2020, it took just nine weeks to eclipse the same total. From the week ending March 21st, 2020, through the week ending on March 20th, 2021, 82.6 million initial unemployment claims have been filed, exceeding the Great Recession total by 122% and good for roughly one claim for every two Americans in the labor force.

From K-, W- Crooked L-, W-, and V-shaped recoveries, alphabet enthusiasts have had their hands full this past year. After the initial lockdown, labor markets quickly sprang back between May and October, with the unemployment rate falling by 7.9%, landing at 6.9%. Progress has slowed in the months since, with the unemployment rate settling at 6.2% through February 2021. Of course, the nature of losses and improvements has not been felt proportionally across different industries. For workers employed in Financial Services, Government, Agriculture, Education and Health Services, and Manufacturing, employment losses in 2020 ranged from mild to non-existent. On the other side of the spectrum, the Leisure and Hospitality sector continues to battle an industry-level unemployment rate that is 7.8% higher than it was one year ago.


As COVID’s arrival on US shores settled in, Treasuries recalibrated to the dampened outlook, falling to new all-time lows. Treasury rates dipped by more than 100 bps in less than one month, reaching their bottom of 0.54% on March 9th, 2020. By August, a rebound of economic activity and job growth was already underway, allowing for the return of some forward-looking optimism. As vaccine distribution ramps up and the federal government infuses additional stimulus into businesses and households, market expectations have firmed, and Treasury rates have returned to pre-COVID levels.

With the possibility of several tailwinds hitting the economy’s sails all at once, some market watchers are beginning to sound the alarm on inflation. Market-based inflation expectations can be measured by taking the difference between 10-Year Treasuries, which are quoted nominally, and 10-Year inflation-adjusted securities, commonly referred to as TIPS. This spread has soared over the past year, reaching 2.36% on March 29th, 2021— the highest level since 2013. With inflation expectations rising, questions over the ‘how’ and ‘when’ the Federal Reserve might next raise rates have also come to center stage. Nevertheless, Fed Chair Jerome Powell has reiterated that the Central Bank is committed to an accommodative monetary regime, and a rate-hike should not be expected until at least 2023.


1 Census Bureau; Through Q4 2020

2 Real Capital Analytics; Through Q4 2020

3, 4, 5, 6, 7 Ibid.

8 CoStar; Through Q4 2020

9 Ibid.

10 Census Bureau; Through 2019

11 Ibid.

1 https://fred.stlouisfed.org/series/GDPC1#0

2 https://www.cbo.gov/data/budget-economic-data#4


SVN International Corp. (SVNIC) is a full-service commercial real estate franchisor of the SVN® brand. Spanning more offices in the United States than any other commercial real estate firm, in nearly 200 locations serving 500 markets, and with continuing global expansion, SVN is one of the industry’s most recognized names. SVN provides sales, leasing, corporate services, and property management services to clients across the globe. SVN Advisors also represent clients in auction services, corporate real estate, distressed properties, golf & resort, hospitality, industrial, investment services, land, medical, multifamily, office, retail, self-storage, and single tenant investments. All SVN offices are independently owned and operated. For more information, visit www.southlandcommercial.com.

Hold On While I Rock the Boat: What Happens to Your Tenants When You Sell Your Building

Let’s say you are thinking about selling your building and you want to know what will happen to your tenants if you sell. Should you warn your tenants to start shopping for other space?

In most situations, the answer is no. Your tenants will probably not even be affected by the transition. However, knowledge that you are thinking of selling is often enough to worry tenants and make them think about jumping ship which is why many landlords keep this information confidential until a sale is complete.

Whether you decide to tell them about your plans or not, below are answers to a few common questions that will help you determine if your tenants have anything to worry about.

Can the new owner kick your tenants out?

Maybe. It all depends on the lease you signed with them.

  • If you have tenants whose leases have expired, they are considered month-to-month tenants. They could be kicked out. If you have tenants who don’t have a formal lease agreement, they could be kicked out. Unless the tenants have a lease that gives them the right to the space they are renting, the new owner could evict them, raise their rent, downsize them, etc. The new owner may not be planning to evict any of the tenants. In fact, most landlords want as many tenants as they can have.
  • If you want to help your tenants secure their rights to their suite, provide them with a new lease or a lease renewal. This will put them under a formal agreement prior to the sale that will be enforceable after the sale. As an added bonus, having tenants with longer term leases will most likely improve the value of your investment sale.
  • If the leases your tenants have allow you to evict them, the new owner will have the same right. Reread the leases you signed with your tenants to understand what options you will be giving to the new owner. Look for sections entitled Right to Terminate or Early Termination.
  • Encourage your tenants to continue to paying their rent on time. If they fall behind after the sale, their new landlord can evict them whether their lease has the Right to Terminate clause or not.
  • When reading your tenant leases, pay close attention to all language regarding termination and make sure there is not an option for termination if the building sells. It’s rare, but some leases contain rights for a new owner to terminate tenant leases after a purchase. If the sale of the building is not mentioned in a lease, the lease remains the same after the sale.

Will your tenants have to sign a new lease with the new owner?

They don’t have to. New owners often ask tenants to sign new leases and the tenants can choose to do so but they are not obligated if they already had a lease with you that transferred over to the new owner. For example, the new landlord may offer a short term rent reduction to persuade tenants to extend their lease term or expand the size of their premises. Your former tenants should know that they have the right to negotiate because they do not have to modify their lease if their previous lease remains in effect.

Should I give my tenants their security deposits back?

Someone has to return the security deposits to the tenants. The most common dollars-426026_1280scenario is transferring the security deposits along with the tenant leases from the Seller to Buyer on the HUD statement at closing. The new owner will be responsible for refunding the deposits at the end of each lease if the tenants comply with the lease terms. In rare cases, the buyer may want you to give the tenants their security deposits back instead of transferring them in the sale.

In summary, it is common for tenants to experience little change when their landlord sells their building. The current tenant leases transfer with the sale of the building. Leases remain in effect. Anything that was previously allowed in their leases will remain until the leases expire.

This article was originally published on www.svn.com.

Featured topics:

WSJ Economic Forecasting Survey
Apartment Sector Update
Office Sector Update
Retail Sector Update
Industrial Sector Update
Mortgage Rates
Office Tenants in the Driver Seat
Retail Sales

Commercial Real Estate – Economic Update_10.29.21 (Download Full Report – PDF)

1. GDP

• Economic growth slowed in the third quarter, settling at an annualized growth rate of 2.0% after an increase of 6.7% in the second quarter. Thursday’s advanced estimates come in below most economists’ forecasts. The latest Wall Street Journal Economic Forecasting Survey projected an expansion of 3.12% in the third quarter.

• The emergence of the delta variant placed downward pressure on consumer spending throughout the summer months, as some reopening efforts slowed, and consumers marginally held back spending.

• Supply chain bottlenecks and a persistent labor shortage facing several industries have also contributed to the gap between expected and actual growth, as businesses across the economy signal that they are unable to meet sales demand amid the constraints.

• In the third quarter, government spending took a dip as stimulus spending and grants to state and local governments declined.

• Private inventory declined but was largely a reflection of increased wholesale and retail trade, led by motor vehicles and parts dealers. Imports increased during the quarter relative to exports, causing a negative impact on GDP growth.


• According to the newest projections out from the Wall Street Journal Economic Forecasting Survey, economists expect Q4 GDP growth to rise to 4.81%, more than double the third quarter advanced estimate released by the Bureau of Economic Analysis on Thursday, October 28th. Projections were made prior to Thursday’s advanced estimates, so it will be noteworthy where the panel lands during the next slate of projections given the Q3 shortfall.

• Consumer Price Index (CPI) projections ticked up to an average forecast of 5.25% for December 2021, up from the July estimate of 4.11%. Inflation projections are far ahead of where economists forecasted earlier in the year, with the average December 2021 projection rising from 2.14% in January. Respondents expect inflation to decline throughout 2022, falling to 3.43% in June 2022 and to 2.64% in December 2022.

• With the Federal Reserve signaling in recent meetings their appetite to raise interest rates if economic growth holds up, economists see a maintaining of the current 0.125% policy rate through the end of this year before an increase to 0.146% in June 2022. The Average forecast for December 2022 was raised to 0.34%, up from an average of 0.28% during the July survey.


• According to Real Capital Analytics, Apartment cap rates are averaging 4.7% through Q3 2021 — down 8 bps quarter-over-quarter and down by 39 bps from this time last year.

• Of the three subsectors that RCA tracks, Garden Apartments observed the most cap rate compression over the past year, declining by 36 basis points (bps) to settle at an average cap rate of 4.8%. Mid/ Highrise Apartments follow next, posting annual cap rate declines of 20 bps. Meanwhile, Student Housing cap rates rose by 23 bps year-over-year through Q3 2021.

• Apartment transaction volumes have surged over the past two quarters. Real Capital Analytics tracked $78.7B of Apartment sector sales in Q3 2021 alone— the largest quarterly observation on record. The Q3 total is up by 31% quarter-over-quarter and 192% year-over-year.

• Asset price growth is also enjoying a bull-run. According to RCA, apartment unit valuations through Q3 2021 are up 5.1% from the previous quarter and 15.2% from one year ago.


• According to Real Capital Analytics, Office sector cap rates are continuing to sink to new all-time lows, reaching 6.3% in Q3 2021—down 8 bps quarter-over-quarter and 22 bps year-over-year.

• Suburban Office assets notched the most annual cap rate compression over the year ending Q3 2021, totaling 29 bps. Medical Office properties follow next, with cap rates falling 23 bps year-over-year. Single Tenant assets and Central Business District located properties hold up the rear, posting cap rate declines of 9 bps and 6 bps, respectively.

• Office sector transaction volumes are recovering through Q3 2021. Real Capital Analytics tracked $34.8B of Office sector sales in Q3 2021, a 24% improvement from Q2 and 137% from the same time last year.

• Asset price growth is proving encouragingly robust through Q3 2021. According to RCA, Office sector valuations measured on a per square foot basis are up 7.1% quarter-over-quarter and 13.2% year-over-year.


• According to Real Capital Analytics, Retail sector cap rates have continued to edge down, albeit more slowly than the other major CRE sectors. Through Q3 2021, Retail sector cap rates stand at 6.4%— down a singular basis point from Q2 and down by 11 bps year-over-year.

• Drug Store and Single Tenant Retail assets have posted the largest annual cap rate declines through Q3 2021, falling by 33 bps and 36 bps, respectively. On the other side of the spectrum are Urban Store Fronts and Mall assets, which have posted cap rate increases of 17 bps and 28 bps, respectively.

• Retail sector transaction volumes reached the highest quarterly total since the end of 2019. Real Capital Analytics tracked $17.4B of Retail sector sales in Q3 2021, a 14% improvement from Q2 and 127% from the same time last year. Moreover, compared to the total set through the first three quarters of 2019, the 2021 total is down by just 7.5%.

• Asset prices, on average, are reaching new all-time highs in the Retail sector. According to RCA, Retail sector valuations measured on a per square foot basis are up 6.4% quarter-over-quarter and 13.2% year-over-year.


• According to Real Capital Analytics, Industrial sector cap rates held effectively flat in Q3 2021, declining by just one basis point to remain at 5.6%. Measured year-over-year, Industrial sector cap rates are down by 29 bps through Q3 2021.

• Single Tenant and Warehouse Industrial assets have posted the largest annual cap rate declines through Q3 2021, falling by 16 bps and 41 bps, respectively. On the other side of the spectrum is Flex Industrial space, which posted an annual cap rate increase of 9 bps.

• Industrial sector transaction volumes rose for the second consecutive quarter, according to Real Capital Analytics, rising to $39.5B in Q3. The quarterly total is up 21% quarter-over-quarter and 130% year-over-year. Compared to the total set through the first three quarters of 2019 and 2020, the 2021 total up by 18% and 48%, respectively.

• Unsurprisingly, Industrial sector asset prices are rising with momentum to new all-time highs. According to RCA, Industrial sector valuations measured on a per square foot basis are up 6.5% quarter-over-quarter and 17.1% year-over-year.


• Mortgage rates climbed to their highest mark since April 1st as the 30-year average reached 3.14% during the week ending on October 28th,2021. according to the latest data from Freddie Mac. After climbing in the Spring, rates had fallen to a range of 2.8-3.0% throughout the Summer before climbing above 3.0% and staying there since the beginning of October.

• Rates have increased alongside a recent uptick in the 10-year Treasury yield, which reached a seven-month high during the week of Monday, October 18th. Both increases come amid the backdrop of the Federal Reserve signaling that they will scale back bond purchases and potentially raise short-term interest rates in the near term.

• Home sales have continued to chug along during the climb, with prices reaching new all-time highs — however, an increase in home listings may help to relieve some of the inflationary pressures.


• A new report out by Trepp helps detail the newfound leverage of Office market tenants, with roughly $36 billion in loans that are securitized against Office assets expected to mature between now and 2024. According to the report, $5.4 billion of these loans have at least 25% of their tenant leases expiring in the next 12 months, highlighting the urgency for properties managers to fill the imminent vacancies.

• An August survey of CRE sentiment by Trepp found that 90% of respondents expect effective rents and occupancy to be below pre-pandemic levels over the next six months. 44% expect occupancy to be “well-below” pre-pandemic levels during this time.

• New issuance has been re-concentrated in urban areas, indicative by urban markets’ surpassing their 2019 totals on a year-to-date basis. Suburban areas, on the other hand, have been hampered by the effects of the pandemic, as large companies have increased investment in areas where COVID shutdowns have discounted local real estate, while smaller tenant demand has decreased marginally due to work-from-home flexibility.

• Within the next year, roughly $1.9 billion in urban office property loans will see at least 25% of their leases expire, with $874 million in suburban office loans also at exposure, $192 million in medical office loans, and $36 million in flex/R&D loans.


• The Consumer Price Index (CPI) recorded an average price increase of 0.4% in October from the previous month and 5.4% year-over-year, according to the latest release by the Bureau of Labor Statistics.

• Food items and shelter contributed more than half of the seasonally adjusted increase in the index during the month, each climbing by 0.9% and 0.4%, respectively. Notably, food consumed at home rose 1.2% over the month compared to just a half a percentage point increase in the price of food consumed at establishments.

• Energy costs continue to drive up broader inflation, up 1.3% on the month driven largely by the increase in fuel oil pricing. Energy price increases have fallen from their March peak of 5.0% month-over-month but remain up by 24.8% on the year.

• The All Items Less Food and Energy component of the CPI rose by 0.2% in October and 4% year-over-year, led by a rise in new vehicle pricing and shelter costs. Used vehicles and transportation services, which have seen steady price increases throughout much of 2021, have now seen prices fall for a consecutive two and three months, respectively.


• U.S. food and retail sales rose 0.7% in September to a seasonally adjusted $625.4 billion, an increase of 13.9% from September 2020. Total sales for Q3 2021 are up 14.9% from Q3 2020.

• Sales at gasoline stations led the largest year-over-year uptick, with transactions climbing by 38.2% from September 2020. Increased economic activity combined with rising gasoline prices has necessitated more trips to the pump for many consumers.

• The uptick signals that consumers are shrugging off the hesitancy brought on by the delta variant surge and have continued to increase their activity. However, the expected indication of a decrease in personal consumption expenditures in the upcoming October 29th update could signal a reduction in retail sales ahead.


https://www.bea.gov/data/gdp/gross-domestic-product (1)

https://www.wsj.com/articles/economic-forecasting-survey-archive-11617814998 (2)

https://app.rcanalytics.com/#/trends/downloads (3)

https://app.rcanalytics.com/#/trends/downloads (4)

https://app.rcanalytics.com/#/trends/downloads (5)

https://app.rcanalytics.com/#/trends/downloads (6)

http://www.freddiemac.com/pmms/ (7)

https://www.trepp.com/hubfs/Office%20Tenant%20Report%20October%202021.pdf (8)

https://www.bls.gov/news.release/cpi.nr0.htm (9)

https://www.census.gov/retail/marts/www/marts_current.pdf (10)

©2021 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document

Featured topics:

  • Commercial Property Prices
  • Industrial Forecast: NAIOP
  • Industrial: Yardi Matrix
  • NMHC Construction Survey
  • Inflation
  • Private REITs
  • Apartment Investment Market Index
  • New York Office Demand
  • Weekly Jobless Claims
  • Google Purchase

Commercial Real Estate Economic Update_10.01.21 (Download Full Report- PDF)


• According to the Real Capital Analytics commercial property price index (CPPI), asset prices accelerated through August, growing an average of 1.5% from a month earlier. Moreover, the national all-property type CPPI is up a robust 13.5% year-over-year, marking the fastest annual growth since January 2006.

• Apartment assets continue to lead the way, notching the highest annual growth rate of the four major commercial property types. The apartment CPPI grew 1.6% month-over-month and 14.7% year-over-year through August.

• Retail assets posted the best month-over-month growth rate of the core-four property types, gaining 1.9% between July and August. Measured year-over-year retail prices are up by 12.1%.

• Industrial assets continue to plot a robust and consistent growth path, growing 1.3% and 13.6% month-over month and year-over-year, respectively.

• Overall, office price growth is the laggard of the pack. Month-over-month prices grew by 1.3%, and the year over-year tally sits at 11.2%. Trends are divergent between different office subtypes. Central business district located office assets have yet to establish any positive momentum, continuing to post both month-overmonth (-0.05%) and year-over-year (-3.7%) declines. Meanwhile, suburban office price growth has remained resurgent, growing 1.6% from a month earlier and 14.8% from last year.


• NAIOP’s Q3 2021 Industrial demand forecast maintains an overall positive bill of health for the asset class, pointing to a long-term trend of e-commerce adoption that has “no end in sight.”

• For the second half of 2021, NAIOP forecasts that total net absorption for the sector will total 162.6 million square feet, bringing the tally for the annual forecast to 329.5 million square feet. If the forecast holds up, it will represent a sizable 47.4% growth rate from 2020’s mark.

• NAIOP expects that 2022 will be another banner year for the sector, with its current net absorption forecast sitting at 334.6 million square feet.

• The sector’s outperformance is led by coastal port cities, with NAIOP’s report noting that pricing on a per square foot basis is up, vacancy rates are low, and new leases are being signed at a high rate. Despite new and planned deliveries rising to higher marks than in years past, demand continues to outpace supply, sustaining a positive outlook for net absorption trends.


• The latest Yardi Matrix report on the Industrial sector sits well in line with NAIOP’s projections. Yardi forecasts that through 2026, Industrial demand will continue to grow “unabated.”

• Through July, Industrial rents sat at $6.31 per square foot, a 4.0% increase from one year ago.

• The report identifies Phoenix as the country’s largest pipeline of new Industrial supply. In the ascending Sun Belt metro, there are an impressive 23.9 million square feet of Industrial supply currently under construction— a total that represents 9% of existing local stock.


• According to the latest National Multifamily Housing Council (NMHC) Construction Survey, which tracked responses between August 25th and September 17th of this year, construction delays have only become more pervasive in recent months. A whopping 93% of respondents are reporting construction delays in their jurisdictions, up 10% from the previous survey round in June.

• A near-uniform 91% of respondents identified issues with permitting, entitlements, and professional services as a primary culprit causing downstream delays. • Project re-pricing has now become the norm. As of the latest survey, 92% of respondents report experiencing project re-pricing. Moreover, 72% report that re-pricing has exceeded a 5% bump. As recently as July 2020, there were more respondents reporting that projects are re-pricing down rather than up.

• Labor availability remains a significant concern for the industry. A staggering 88% of respondents report that the availability of labor is impacting their business. Further, a majority (54%) report that even at higher compensation levels, it is difficult to find qualified workers— signaling a structural mismatch between the size and composition of the construction labor force and what project managers demand.


• The Bureau of Labor Statistics’ Consumer Price Index (CPI) showed a 5.3% year-over-year increase as of August 2021. However, 0.3% monthly increase was the slowest increase since February 2021 and slightly underneath the 0.4% median forecast as reported in a Bloomberg Survey. Though inflation is down from prior months, price increases are rising ahead of the Fed’s inflation target with signs that upward inflation pressures could remain given supply-chain issues and energy prices.

• The slower monthly price increases were partially related to a decline in the price of used vehicles, which fell 1.5% after months of increases. Tourism-related categories showed slowdowns as the Delta-variant continues to impact consumer choices. Transportation and lodging prices fell 2.3% and 2.9%, respectively.

• However, monthly prices for rent and owners’ equivalent rent (OER) advanced 0.3%. Though year-over-year and monthly increases in rent and OER inflation have been mild relative to other goods and services, the historically hot housing market and unpredictability of return-to-office for many U.S. workers could keep inflation rising into 2022. In addition, a Dallas Fed article from August 2021 indicated that rising home prices have a tendency to filter into rising rents in under two years.

• Consumer expectations of inflation are watched closely as inflation expectations tend to impact actual inflation outcomes, and consumers sharply increased their higher expectations for inflation from 4.0% to 4.8% in the New York Fed’s June 2021 Survey of Consumer Expectations.


• The SEC recently released a report with a recommendation to open private REIT investments to retail investors. Previously, private investments in real estate have only been open to those who have a substantial net worth, otherwise known as accredited investors.

• The SEC’s reasoning is partially based on its expectation that the share of investment assets owned by retail investors and self-directed retirement accounts to grow and that there would likely be increased demand among these investors for more investment options. Additionally, the SEC felt that investment options had decreased over time owing to a higher concentration in stock market capitalization and decreased overall stock listings.

• There are currently ways that retail investors can access private investment, such as through crowdfunding or open/closed-end funds. However, the SEC concluded that “whilst there are some methods for retail investors to gain access to private investments, these are either in the form of diluted exposure in open-end mutual funds or in closed-end funds which have remained a very small minority of the retail investment landscape.”

• The downstream impact to commercial real estate, as reported by Globe Street, is “unclear.”


• Freddie Mac’s Apartment Investment Market Index (AIMI) improved in Q2 2021, gaining 0.7% quarter-over quarter and 2.6% year-over-year.

• AIMI considers three factors: borrowing costs, property prices, and property-level income growth. Blended into the composite index, AIMI is designed to show how “the relative value of investing in multifamily properties has changed over time.”

• The NOI sub-index, which tracks the property-level income portion of the equation, grew by a stratospheric 4.8% from the previous quarter— an indication of rent pricing pressures.

• Low mortgages rates also contributed to AIMI’s overall ascent, as Freddie Mac reported average mortgages rates at just 2.8% in Q2, the lowest reading on record.


• A recent report by Fitch Ratings looks to contextualize the pandemic’s impact on the New York Office market, and by extension, other gateway cities. The study finds that, despite the short-term disruptions caused by the pandemic’s spread, office real estate largely avoided significant stress due to long-term leases and staggered expiration dates.

• Furthermore, stable rent collections from larger, corporate tenants have kept net operating income afloat, while street-level retail and parking garages have helped owners retain cash flow.

• The report also notes several negative factors that could potentially stall the office sector for New York and other large markets going forward, including the acceleration of outmigration seen in 2020, alongside persistently high rents for younger professionals whose presence much of these market’s long-term values will rely on. Increased work-from-home alongside infrastructure shortfalls (public transportation underinvestment, traffic congestion, etc.) could also serve as a longer-term drag on larger markets.

• Fitch estimates that if the above trend holds, they could reduce office demand by up to 10% in the long run and that half of all excess space created from this trend will need to be repurposed. The report notes that this is an improvement on the 10%-20% decline in demand for U.S. large loan CMBS transactions referenced in a separate analysis earlier this year.


• Seasonally adjusted initial employment claims totaled 362k during the week ending on September 25th, an increase of 11,000 from the previous week. The four-week moving average rose from 336k in the previous week to 340k.

• The reading exceeds estimates made by several economists, beating out a Dow Jones survey that had forecasted 335k new filings. The rise reflects a lingering impact from the effects of Hurricane Ida, which pummeled cities across the South and Northeast earlier in the month. The impact of the delta variant, as well as the rollout of vaccine mandates, has and may continue to place stress on hiring efforts.

• Continuing unemployment claims fell this week to 5 million from 6.2 million, a steep drop that is likely the continued impact of the expiration of supplemental unemployment benefits in September. Supplemental benefits from 9 states, Alaska, California, Connecticut, District of Columbia, Illinois, Nevada, New Jersey, New Mexico, and Texas, all expired during the week ending on September 11th.

• The highest state-level unemployment rates (excluding Puerto Rico) at the time of the extended benefits’ expiration were California (3.4%), followed by the District of Columbia (3.2%) and Oregon (3.2%).


• On September 21st, Google announced its intentions to purchase a $2.1 billion office building in Manhattan, bringing a welcome dose of good news for those concerned about the prospects of the office market in New York City and beyond.

• The tech giant already boasts a large footprint in the New York office market, hosting 12,000 corporate employees in the metro area, its largest cohort outside of its California headquarters. The 1.3 million square foot St. John’s Terminal was already under lease by Google with a provision that gave them an option to purchase the property, which they exercised as it looks to solidify its imprint on the Big Apple.

• Notably, this month’s purchase comes after Google rose to the forefront of large corporations that have allowed their employees to work remotely long-term, even indicating their intentions to allow many to do so permanently. The move is an important signal that businesses still foresee a need for office space in a post-pandemic economy, even as they make concessions for employees to remain at home.


https://app.rcanalytics.com/#/trends/cppi (1)

https://www.naiop.org/en/Research-and-Publications/Reports/Industrial-Space-Demand-Forecast-3Q21 (2)

https://www.yardimatrix.com/publications/download/File/1315-MatrixIndustrialReport-August2021 (3)

https://www.nmhc.org/research-insight/nmhc-construction-survey/nmhc-construction-survey-round-8/ (4)

https://www.dallasfed.org/research/economics/2021/0824 (5)

https://www.bloomberg.com/news/articles/2021-09-14/consumer-prices-in-u-s-increase-by-less-than-forecast (5)

https://mf.freddiemac.com/aimi/#:~:text=The%20Freddie%20Mac%20Multifamily%20 Apartment,nationally%2C%20has%20changed%20over%20time (7)

https://www.fitchratings.com/research/corporate-finance/what-investors-want-to-know-the-future-of-newyork-office-space-cre-post-pandemic-cross-sector-insights-20-09-2021 (8)

https://www.dol.gov/ui/data.pdf (9)

https://www.globest.com/2021/09/21/google-to-buy-st-johns-terminal-in-manhattan-for-2-1b/ (10)

©2021 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

Featured topics:

  • Office Demand
  • Consumer Spending: Residential Districts vs. CBD
  • HUD Rule on Tenants Facing Eviction
  • Construction Spending
  • Goldman Cuts U.S. Growth Forecast
  • Mortgage Applications
  • Zombie Properties
  • Trepp Delinquency Data
  • Employment Situation
  • Job Openings and Labor Turnover Summary

Economic Update 10.15.21 (Download Full Report- PDF)


• Demand for office space rose in August, following a sluggish July where the delta variant reduced the speed of growth across key economic indicators, according to the latest report from VTS. The VTS office demand index (VODI) rose by 3.65% month-over-month to 87 in August, the highest level since the pandemic began. To date, the VODI remains -13% below its pre-pandemic benchmark.

• On a year-over-year basis, office demand has risen by 235%, easing earlier concerns that the pandemic’s crushing of the office sector in 2020 would become a longer-term, secular shift. While lingering public health concerns and a new remote-work economy still present downside risks to the sector, demand has now climbed in eight of the past nine months and has recovered 84.4% of its post-COVID drop.

• Employment within “office-using” sectors rebounded in July (the latest month of data availability), charting an annualized growth rate of 4.3%, a stark contrast from the 0.8% growth rate observed in June. Using data from July’s jobs report by the BLS, the report notes that the largest increase in office-using jobs came from growth in information services employment, which saw an 11.8% annualized increase in July.


• A study by the Mastercard Economics Institute on consumer spending in New York City found that small-andmedium-sized businesses in residential districts have fared significantly better in their recoveries than their counterparts in central business districts.

• Spending at small businesses located in central business districts fell to 67% of their 2019 levels through April 2020. Through August 2021, spending at these firms has returned to 73% of 2019 levels. Comparatively, spending at businesses in residential neighborhoods, which fell to 85% of their 2019 levels through April 2020, have since grown past their pre-pandemic marks and sit 124% above 2019 their year-to-date mark.

• While the study focused on the NYC metro, similar trends have affected cities across the world. Globally, spending in central business districts remains roughly 33% below pre-pandemic levels through August 2021.


• On October 7th, the Department of Housing and Urban Development (HUD) introduced a new rule that requires public housing agencies to notify tenants of public housing or project-based rental assistance programs of information related to Emergency Rental Assistance (ERA) programs before they can be evicted. The rule will not apply to recipients of Section 8 Housing Choice Vouchers.

• The new policy will also amend a standard eviction policy for public housing agencies, extending the window in which they must provide a written notice to a tenant regarding their eviction from 14 days before to the eviction date to 30 days

• The new rule is effective immediately and comes amid a stubbornly slow rollout of funds from the ERA fund, a COVID-era federal program that facilitates rental aid to tenants impacted by the pandemic’s fallout. In discussing the implementation of this new policy, HUD states its intent to “act to prevent a wave of preventable evictions that will interfere with the program’s accomplishment of HUD’s mission.”


• According to the Census Bureau, the seasonally adjusted value of new US construction put in place totaled an annualized $1.58 trillion as of August 2021— a new all-time high and an 8.9% improvement from one year ago.

• Residential construction unsurprisingly posted the highest growth rate for the year ending August 2021, with the total value of new construction put in place rising a stratospheric 23.9%.

• New put in place construction for lodging and office properties both remain down on a year-over-year basis, falling 31.1% and 5.0%, respectively. While office construction has started to recover slightly, lodging continues to slide to new pandemic-era depths.

• Commercial construction, which includes both retail properties as well as warehouses and distribution facilities amongst other uses, is up 6.9% year-over-year.


• Goldman Sachs revised down its projections for 2021 US economic growth by 10 bps from 5.7% to 5.6%. Their forecast for 2022 GDP fell further, revised down from 4.4% to 4.0%. Notably, the bank revised up its projections for 2023 and 2024.

• According to the bank’s team of researchers, the updated forecast reflects the impact of a longer-lasting “virus drag” on sensitive consumer services alongside the weakening of reopening-influenced demand, which has driven the elevated spending seen in recent months.

• Further, economists have grown concerned about a prolonging of supply chain issues that have arisen during the pandemic economy, most notably a global semi-conductor shortage, which has contributed to price inflation in highly popular consumer products.

• Looking past 2021, the team factored in the tapering of fiscal stimulus and its likely impact on consumption. What remains to be seen, the researchers say, is whether consumer spending on services will pick up from pandemic lows to offset the likely fall in goods-related spending.


• According to a recent survey by the Mortgage Bankers Association, mortgage applications decreased by 6.9% week-over-week during the week ending on October 1st, 2021, falling to its lowest level in three months.

• This comes amid the backdrop of an increase in the 30-year fixed rate to 3.14%, its highest weekly mark since July. As mortgage rates rise, borrowers’ incentive to refinance decreases. The Refinance Index, a submetric within the survey, fell by 10% from the week prior and was 16% lower than the same week one year ago. Refinance’s share of mortgage activity now stands at 64.5%.

• Noteworthily, purchases have also fallen in recent weeks, but higher-balance loans driven by high sales prices and continuing home price appreciation are offsetting the impact of lower activity.

• The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA stands at 3.12% in the latest reading, while the average rate on 15-year fixed-rate mortgages stands at 2.45%.


• A newly released report by ATTOM finds that 1.3 million residential properties sit vacant in the US, representing 1.4% of all homes. However, on a more positive note, the total number of vacant homes in preforeclosure fell 6.7% quarter-over-quarter and 5.3% from a year earlier.

• The number of properties that are in the process of foreclosure has also fallen, down 3.7% quarter-overquarter and 0.2% year-over-year. The share of pre-foreclosure properties that have been abandoned, or socalled “zombie properties,” have dropped 0.1% quarter-over-quarter to 3.5%.

• On the state level, New York retains the highest level of zombie properties (2,053), followed by Ohio (939) and Florida (912), but each state’s high population and asset counts greatly contribute to their standing. On a quarter-over-quarter basis, Maryland saw the steepest relative decline in “zombie” foreclosures, falling 39%. Following next was Massachusetts (down 26%) and New Mexico (down 24%).

• The survey arrives just after the conclusion of a year-and-a-half-long foreclosure moratorium that sunset in August. Some states still maintained some forms of protection throughout Q3, while court rules and delays in certain jurisdictions have also stalled foreclosure activity. Activity in Q4 should help paint a fuller picture of the market’s post-moratoria trend.


• CMBS delinquency rates continued to improve in September, falling 39 bps from August to 5.25%, according to figures reported by Trepp.

• Delinquency rates have now declined for 15 consecutive months following COVID-provoked jumps in May and June of 2020. While the pace improvement slowed to begin the summer of 2021, it re-accelerated in August and September. Compared to one year ago, the CMBS delinquency rate is down 3.67%.

• Retail and lodging CMBS delinquency rates have remained stubbornly high during the ongoing recovery. The Retail CMBS delinquency rate improved by 68 bps to land at 9.75%. Lodging CMBS delinquency rates also improved by an encouraging 60 bps from the previous month, bring the tally down to 11.45%.

• Industrial CMBS delinquency rates sit at 0.59% through September 2021. Even during the worst of last year’s shutdown, industrial CMBS delinquency rates never eclipsed 2%.

• Office CMBS delinquency rates fell by 10 bps in September to land at 2.02%. Following a slight uptick in July, Office CMBS delinquency rates have started to trend in a more positive direction again.


• Total nonfarm employment rose by 194,000 in September, far below the 500,000 jobs forecasted by the Dow Jones Survey of Economists and out of step with the average monthly growth of 561,000 jobs seen throughout 2021. Employment levels remain 5 million below the pre-pandemic high.

• The Unemployment rate fell by 40 bps to 4.8% in September, with an estimated 710,000 decline in the number of unemployed persons. The Labor force participation rate was little changed. Unemployment numbers, taken from the Household Survey, have marked notable discrepancies from jobs data, which is taken from the establishment survey, most likely due to data-collection constraints from the pandemic.

• One of the more notable points in the recent survey showed a decline in local government education employment, which dropped by a seasonally adjusted 144,000 amid the back-to-school push (when hiring in the sector typically picks up). The BLS notes that pandemic-related staffing fluctuations make interpreting the trend difficult, but it still raises concerns that the economy-wide labor market shortage could impact efforts to return children to schools and could further complicate the practicality of various vaccine mandates being instituted for teachers across the country.


• Job openings declined to 10.4 million during the last business day of August, following an all-time high of 11.1 million in July, according to the BLS’ latest JOLTS data. The largest decreases were in health care and social services, accommodation and food services, and state and local government education.

• Hires fell to 6.3 million in August, down from 6.8 million in the previous month. Meanwhile, separations were little changed at 6.0 million. Quits climbed to an all-time high of 4.3 million during August— 17.7% above its pre-pandemic peak.

• Despite the decline, filing job openings remains a difficult task for firms across multiple industries. Combined with the underwhelming job growth numbers seen in the recent September jobs report, the resulting labor market shortage has challenged the stability of the economic recovery. Hiring difficulties have contributed to recent inflationary pressures and, in many cases, have prevented firms from taking advantage of existing sales opportunities.


https://vts.drift.click/september-vodi (1)

https://www.mastercardservices.com/en/recovery-insights/small-business-reset/challenges-and-opportunitiesaround-globe (2)

https://www.federalregister.gov/documents/2021/10/07/2021-21960/extension-of-time-and-requireddisclosures-for-notification-of-nonpayment-of-rent (3)

https://www.census.gov/construction/c30/release.html (4)

https://www.marketwatch.com/story/goldman-economists-cut-u-s-growth-forecasts-for-2021-2022- reports-11633907471 (5)

https://www.mba.org/2021-press-releases/october/mortgage-applications-decrease-in-latest-mba-weeklysurvey (6)

https://www.attomdata.com/news/market-trends/foreclosures/attom-q3-2021-vacant-property-and-zombieforeclosure-report/ (7)

https://www.trepp.com/hubfs/Trepp%20September%202021%20CMBS%20Delinquency%20Report.pdf (8)

https://www.bls.gov/news.release/empsit.nr0.htm (9)

https://www.bls.gov/news.release/jolts.nr0.htm (10)

©2021 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

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