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February 21, 2024
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Commercial Real Estate Values Return to Pre-Pandemic Levels in Many Markets


This report provided by CBRE

A new CBRE survey finds that commercial real estate values have returned to pre-pandemic levels in many U.S. markets, continuing a recovery throughout the first half of 2021 that began at year-end.

The CBRE survey found that more than two-thirds of real estate investors exhibited increased risk appetite in H1 2021. Investors now broadly expect cap rates to remain stable or compress across most property types through the end of the year.

“The rapid recovery across U.S. real estate markets was mostly made possible by the massive fiscal and monetary response to the COVID-19 downturn that stabilized the economy and benefited property values,” said Chris Ludeman, Global President of Capital Markets for CBRE. “While some uncertainty remains, a strong economic recovery will continue to benefit property fundamentals, investment volumes and values.”

CBRE’s survey, which examined capitalization rates for stabilized properties and investment sentiment on market conditions, revealed several key findings. Capitalization rates—usually called cap rates—measure a property’s value by dividing its annual income by its sale price. A lower cap rate generally indicates a higher value.

Cap rates for stabilized Class A office product in Greater Los Angeles’ central business districts declined to between 4.25% and 5.25% in H1 2021 versus 4.50% and 5.50% in H2 2019. Rates also compressed for high-quality office product in suburban markets to between 5% and 6% from 5.25% and 6.75% in H2 2019.

Cap rates for multifamily product in Greater LA declined most steeply in suburban areas to between 3.75% and 4.5% in H1 2021 from a range of 4.25% and 5% in the second half of 2019.

“We're witnessing dramatically increased demand for multifamily in this region due to many factors, including outsized rent growth, single-family home unaffordability, plus the fact that investors are able to take advantage of very compelling debt markets,” said Los Angeles-based Executive Vice President Dean Zander. “Demand comes generally from long-term holders, such as funds, private family offices as well as institutions seeking security and growth.”

He added, “We have a very educated and diverse workforce, and even as some are relocating to more business-friendly locations, Southern California continues to have national and international appeal.”

In the industrial sector, cap rates in Greater Los Angeles, the Inland Empire and Orange County further compressed in H1 2021 to between 2.80% and 3.50% from 3.75% and 4.25% in H2 2019.

“There is more money chasing industrial transactions than there are opportunities in this region,” said LA-based Vice Chairman Barbara Perrier. “Rents have increased tremendously, which is allowing investors to pay lower cap rates as they are expecting a rise in future net operating income.”

She added, “Industrial is considered a safe haven sought after by pension funds, REITs, private equity and high-net-worth individuals. More recently, we have seen new entrants in the space, too, such as retail and office investors who are shifting their focus.”

Investment Sentiment:

• More than 75% of real estate investors indicated that risk appetite increased during the first half of 2021, with just a handful becoming more risk averse. This corresponds with transaction volumes that were up by 32% year-over-year in H1 2021, observed cap rate movements, and CBRE’s forecast for a strong year of investment activity.

• Investors expect cap rate movement to vary across property types in H2 2021. Cap rates are expected to continue to compress for industrial and multifamily properties in most markets, while rates are expected to largely remain flat for office, retail and hotel assets.

Capitalization Rates:

In light of the extraordinary market conditions over the past year, CBRE’s H1 2021 survey compares cap rates with the pre-pandemic levels in H2 2019, rather than H2 2020.

• While commercial real markets were severely disrupted in mid-2020, recoveries were well underway by year-end and today cap rates across property types are at or below pre-pandemic levels in many markets.

• The pandemic affected certain real estate sectors more than others. Every industrial market reported lower cap rates than in H2 2019, reflecting strong investor appetite because of increased e-commerce demand during the pandemic.

• Suburban multifamily assets were more resilient than their urban counterparts. No suburban multifamily market reported an increase in cap rates, with the majority reporting cap rate compression compared with H2 2019—this reflects strong market fundamentals during the pandemic, with many residents seeking more space, lower-density, and less-expensive rents in the suburbs.

• Despite the uncertainty created by the pandemic, office CBD cap rates remained stable or compressed across most of the top 25 markets (defined by volumes). Most suburban office markets saw cap rates remain stable or compress as the strong policy response to the pandemic helped to stabilize the economy and support values. Some of the cap rate compression may also be due to changes in underwriting (lower net operating income, impacting cap rates).

• While hotel and retail cap rates ticked up slightly, a paucity of closed transactions may have understated the extent of the movement.


• Investors were willing to purchase industrial and multifamily assets at a premium. Investors sought mostly small to moderate pricing discounts for office assets, and moderate to large discounts for retail properties and hotels.

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