Commercial Real Estate Investment Soars on Robust Returns

The preference among institutional investors for commercial real estate (CRE) is approaching a seven-year high, with the industrial and apartment sectors topping the list, according to the latest data and survey of institutional investors, and research by SitusAMC Insights. Senior Director Peter Muoio, PhD, and Jennifer Rasmussen, PhD, Vice President and Head of Thought Leadership and Publications, discussed fourth-quarter 2021 survey findings and the outlook for the economy, capital markets, and property types at the Quarterly Valuation Trends webinar on March 15.

The webinar draws on major topics from the latest ValTrends report, a quarterly analysis offering proprietary insights on valuation trends and space market fundamentals, as well as exclusive survey data on investor appetites for CRE versus bonds, equities, and cash. The full 29-page report, “Strong Investor Appetite Driving Record Returns,” is available as a free download here. 

Among the highlights discussed in the report and webinar:

Robust returns are driving investor appetite for CRE. Total returns increased 100 basis points (bps) quarter over quarter to 6.2%, the highest quarterly return in 42 years, based on the NCREIF NPI. Annual returns were 17.7%, the highest in over 15 years.

CRE transaction volume jumped 88% to more than $800 billion in 2021. That’s the highest annual deal volume on record by more than $200 billion, according to RCA. Some 40% of deal volume occurred in the fourth quarter of 2021, ranking it the highest quarter in history. “After the pop we saw in 2021, we're expecting still really robust results in 2022 and continued strength in 2023, but clearly, things simmering back down to more normalized level levels,” Muoio said.

Transactions in the industrial and apartment sectors shattered records. Industrial volume soared 56% year over year (YoY) to $166 billion, and multifamily rose almost 130% to $335 billion. “Investors are very bullish on industrial generally, and specifically, a very strong buy recommendation for warehousing and flex space,” Rasmussen noted.

Industrial dominated performance for the sixth straight year. The sector returned a record 13.3% in the fourth quarter, and more than 43% on an annualized basis. The apartment sector placed second, with a 6.8% return in the fourth quarter and annual returns of nearly 20%, the highest in more than a decade.

The office sector ranked at the bottom of investors’ preferences. Remote work and emerging hybrid models are putting companies’ real estate plans in question. A SitusAMC poll conducted during the webinar found 57% of the audience said office demand would never return to pre-pandemic levels. “When we look at investors generally, in terms of the buy-sell-hold hold question, they are a little more favorable toward suburban office properties versus the CBD,” Muoio noted. “But the consensus on the office segment is that demand has fundamentally shifted, and this property segment is going to have to adjust.” The biomedical sub-segment continues to see strong demand.

To download the ValTrends Quarterly webinar presentation, click here. Access the full 29-page report, “Strong Investor Appetite Driving Record Returns” here. Learn more about SitusAMC’s research and data offerings here.