Overall, the commercial real estate market has been hit hard by measures to combat the COVID-19 pandemic. However, upon closer inspection, some sectors and geographic markets have outperformed others. By property type, the multi-family and industrial property markets have withstood the onslaught of the pandemic better than the office, retail and hotel industries. In terms of the office market, the major metro and central business districts have seen more occupancy decreases compared to the smaller metro and suburban areas
Real estate transactions are highly dependent on the economic, demographic, housing and commercial market conditions that are specific to a particular area. Based on these factors, the National Association of REALTORS® identified the top 10 markets with stronger economic and commercial market conditions compared to national conditions among the 52 markets for which NAR has commercial market data
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In identifying these markets, NAR took into account 25 indicators based on the latest data from the fourth quarter of 2020 on the region's economic, demographic, housing and commercial market conditions in the multi-family, office, industrial, retail and hotel real estate sectors:
Economically: GDP growth, employment outside of agriculture, unemployment rate, weekly wages, median household income, consumer spending (credit card spending), number of business openings
Demographic: Population growth, net domestic migration
Casing: Home ownership rate, vacancy rate, building permits, ratio of jobs created to residential permits, apartment rent
Trade indicators by property type: Net absorption, vacancy rate, asking rent, inventory, construction
The table below shows indicators of vacancy rates and rents that best reflect the conditions of commercial demand in these markets. Download all the indicators for each subway area.
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Below are the top 10 markets in alphabetical order:
Austin-Round Rock, TX
Austin is a big magnet for moving companies after Phoenix. With an influx of moving companies, the vacancy rate for apartments is a low 3%, which corresponds to around half of the national vacancy rate (6.5%). The low vacancy rate presents a significant opportunity for the multi-family property market in Austin. Austin is also emerging as a strong industrial company, seeing a significant increase in industrial construction of 6.1 million square feet, which is 13% of current industrial space. This is the biggest increase among the top 10 markets. In 2020, commercial space occupancy increased 1.8 million, which offset the roughly 540,000 square feet decline in office space. Among the top 10, the number of employees in December 2020, at 1%, is the lowest decrease compared to the domestic level (-6%).
Cape Coral-Fort Myers, FL
Cape Coral may be known as a tourist destination, but its office and industrial markets are withstanding the negative effects of the pandemic. It is one of two subway areas where office use, along with Raleigh, North Carolina, increased 112,000 square feet as of the fourth quarter of 2020. The vacancy rate was 5.7%, around a third of the national rate (15.5%). Cape Coral is likely to continue to attract new office renters as it has the lowest office rent in the top 10 at 19.6 square feet, which is 56% of the national average office rent (35 square feet). ). The demand for industrial real estate is also strong in relation to supply. At 3.4%, the vacancy rate is below the national rate (5.2%). Due to the low vacancy rate in industry, more industrial buildings can be expected in the future. The number of people employed outside agriculture has fallen by only 4%, despite the 20% decline in hotel and leisure employment.
Charleston-North Charleston, SC
Charleston ranks among the top retail markets due to its strong economic growth of 3% in 2019 compared to the US economy (2.2%). As of December 2020, the unemployment rate will be 4.1% lower than the national rate (6.7%). At 9.4%, the vacancy rate was below the national average (15.5%). While the economy has been hit by the decline in the hotel and leisure business, industrial property construction is stimulating the economy with 2 million square feet under construction, or 2% of current industrial space.
Las Vegas-Henderson-Paradise, NV
Las Vegas is experiencing a significant loss in the hotel, leisure, and employment businesses, but has a booming commercial real estate market. In the fourth quarter of 2020, industrial utilization increased 2.2 million square feet, followed by Phoenix (7.7 million square feet) in the top 10 companies. Another 6.3 million square feet is currently under construction, representing 4% of the total stock of industrial space. There are significant opportunities for the multi-family property market in Las Vegas, as the vacancy rate for rental income is low at 2.9%, which is roughly half the national rate (6.5%). The average home rent in December 2020 was $ 1,302, or 37% of wages.
Despite the decline in hotel and recreational employment, the Nashville economy is holding up the pandemic due to its strong commercial real estate market. In the top 10, it ranks third in terms of square feet of industrial projects under construction (behind Phoenix and Austin), with 5.8 million square feet under construction or a 2.6% expansion of current industrial space. In a strong industrial sector, the number of non-agricultural employees fell by 4% in December 2020, below the national rate (6%), although employment in the leisure and hospitality sector fell by 23%.
Phoenix excels in several ways. Among the top 10 metropolises, it had the largest net domestic immigration in 2019 with 72,000 in 2019. Employment outside of agriculture only fell by 2.3% in December 2020 (6% at the national level). In the case of strong domestic immigration, the vacancy rate is 3.9% below the national rate, which indicates a demand for more apartment buildings. In the top 10, it ranked number one in 2020 in adding new industrial space of 7.7 million square feet. However, as industrial space built up, the industrial vacancy rate rose to 8.1%, which is higher than the national rate (5.2%), but this should also lower the asking price of industrial space to $ 7.7 per square foot, the above the national average ($ 5.2 per square foot).
Raleigh made it into the top 10 due to the general strength of its economy, the demand for apartment buildings and the relatively cheap demand for office rentals. Raleigh's economy rose 3% in 2019, outperforming the national growth rate (2.2%). From the fourth quarter of 2020, the vacancy rate for apartments was 2.5%, well below the national rate (6.5%). This is a clear signal for investors to opt for multi-family houses. The Raleigh market is good for doing business – the average office rent is $ 27 per square foot, below the national average ($ 35 per square foot), with a vacancy rate of 10.2%, which is also below the national average ( 15.5%).
Salt Lake City, UT
Salt Lake City makes the list with the lowest drop in non-farm employment at only about half a percent and the lowest unemployment rate of 3.6% among the 52 markets. However, the booming economy has increased demand for rental homes with a vacancy rate of 5.5% and households spending 31% of the weekly wage on a typical home rent of $ 1,257. Rent is still relatively cheap, however, than in areas like San Jose ($ 2,129), San Francisco ($ 1,997), or Los Angeles ($ 1,840), so Salt Lake City has the potential to attract more moving companies, increasing the demand for housing elevated. Office rent is relatively cheap at $ 27 per square foot compared to tech subway areas like San Francisco ($ 50 per square foot).
The Seattle metropolitan area made it into the top 10 due to its strong economic growth and the possibility of multi-family expansion. Among the 52 metropolitan areas, the economy grew the fastest in 2019 at 5.1%, more than twice as fast as in Germany (2.2%). With this economic expansion came a demand for housing. As of the fourth quarter of 2020, the vacancy rate was 4.4%, which means more housing construction is needed. At 4.5%, the vacancy rate in industry is also below the national rate (5.2%), so that there is still potential for some expansion in the industrial market.
With its low office and apartment rents, Tucson has great potential for attracting businesses and local residents. Net domestic migration is around 12% of net domestic migration to Phoenix, but the lower cost of housing and office rent may attract more people and businesses to the area in the future. Office use rose 101,950 in 2019, one of the few metros in the top 10 lists to see positive net absorption (along with Raleigh and Cape Coral Fort Myers). Office space is relatively cheap at $ 20.5 per square foot compared to Phoenix ($ 28.1 per square foot). The average home rent in December 2020 was $ 1,124, compared to $ 1,338 in Phoenix.
1 See NAR's Commercial Market Insights Report dated February 2021.
2 Office and industrial real estate market data comes from Cushman and Wakefield. The multi-family rental data is from ApartmetnList.com and the rental apartment vacancy rate is from the US Census Bureau. Credit card information comes from Affinity Solutions through Opportunity Insights downloaded from Haver Analytics. Employment data are from the Bureau of Labor Statistics, GDP data from the Bureau of Economic Analysis, and net domestic migration data from the US Census Bureau.