Plenty of real estate investors bought apartment buildings last year to capitalize on rent growth, but commercial real estate (CRE) sales reached an all-time high in 2021 totaling $809 billion, according to data from Real Capital Analytics. Last year’s sales nearly doubled 2020’s mark and topped 2019’s $600 billion.
The U.S. market already surpassed previous CRE annual record totals by the end of November 2021, but in December more than $160 billion of commercial properties changed hands.
Real estate investors loaded up their asset column with warehouses due to the boom in e-commerce products. Essentially, everyone began shopping online when the pandemic hit and that trend is continuing on today. Additionally, investors bought vacation-oriented hotels, which benefited from the resurgence in travel for leisure, according to a report from the Wall Street Journal.
Across all property types, fourth quarter sales surpassed $300 billion, U.S. Capital Trends shows. The apartment sector was behind nearly one half of total deal volume.
Many of these trends began with the pandemic, but the surge in commercial real estate activity shows that investors believe these trends won’t be waning anytime soon. They are waging hundreds of billions of dollars on that belief, the WSJ notes, while previously favored property types like urban office towers and retail in coastal cities were seen as less reliable. Now it seems as if investors are leaning towards permanent remote working conditions.
Instead, investors turned to the Sunbelt cities where the taxes are lower, the weather is warmer, and the housing is cheaper. The top two volume leaders were Dallas, TX, with sales of $48.9 billion and Atlanta, NJ, with sales of $37.1 billion. Florida and North Carolina are also drawing more funding from investors than in the past.
Some investors are skeptical about how long these pandemic trends will last. Stephen Livaditis, managing director of real estate firm Eastdil Secured told the WSJ, “There will be money rotating back into the big city markets,” such as New York and Chicago, which are already benefiting from investments in high quality office buildings.
Due to pandemic related activities, the value of properties owned by real estate investment trusts jumped 24% last year and reached record levels in December, according to analytics firm Green Street. Anyone who invested in REITs at the beginning of 2021 were celebrating this past news year’s with top-shelf champagne.
Overall, rental apartments were the most popular property type to invest in last year due to low housing inventory, rapid home appreciation, and the fact owners were allowed to keep raising rents. U.S. investors hit the gas hard three months into 2021, with multifamily investment volume increasing 128.2% to $148.9 billion in the fourth quarter.
Industrial property came in a distant second place with $166.1 billion in sales, but still a 56% gain from last year.
Office buildings, on the other hand, had a volume of $139.2 billion in 2021, well below the category’s record year. Demand for Sunbelt and suburban office buildings was not enough to offset weak investor demand in the biggest cities with the highest quality office buildings.
