Q1 Investment Sales, Pricing Show Clear Signs of Recovery

The investment sales showed strength for commercial real estate in the first quarter, said Colliers International in a new report.

Aggregate pricing was up 7.8% year-over-year and investment volume reached $96.7 billion.

“While lower than Q1 2020 volume, data across multiple asset classes demonstrates we are on an accelerated road to recovery,” said Colliers which manages nearly two billion square feet and has $40 billion in assets under management.

Looking at industrial, the analysts said rental rates have grown and sales pricing followed suit. Overall net absorption in Q1 hit a new record.

“The median industrial price per square foot has never been higher, and rising rents have led developers to break ground on the next wave of product. 73.2 million square feet of new product was delivered in Q1 and deliveries are projected to increase as the year progresses,” said Colliers.

The firm is seeing demand remaining strong among both existing and new investors in the sector.

“Portfolio shares allocated to industrial assets are growing, and experienced investors are showing increased interest in the infrastructure, data center and cold storage subsectors,” the report noted.

Investors are favoring key distribution networks in Atlanta, Chicago, Dallas, and Los Angeles/Inland Empire.

But while the appetite for large portfolio sales remains, year-over-year volume decreased as a result of limited opportunities.

Positive momentum continues for multifamily pricing and transaction volume, said the firm. New developments offer opportunities to investors willing to take on leasing and stabilization.

The Southeast and Southwest were cited as highly active and attractive due to the availability of product, strong demand drivers and rent growth. 

“Favorable migration and demographic patterns continued in these regions over the past year,” said the report.

Dallas, Phoenix and Atlanta led the country in total sales volume.

At the same time, the Northeast experienced the largest decrease in regional sales volume with New York and New Jersey among the states with the highest population declines.

Negative absorption and an increase in both vacancy and sublease rates for offices has placed downward pressure on valuations. 

But the downward trend aided by the increase in remote workers due to the pandemic over the last year will be temporary, Colliers predicted.

Owners are holding onto their properties and long-term leased properties are trading at high valuations. As a result, a decrease in pricing has not been realized.

The firm said tech is leading the rebound since companies in the industry, favoring face-to-face interaction, are calling employees back to the office and heavily investing in physical footprints.

Boston and San Francisco are the top tech sales markets year-to-date, followed by Los Angeles, Seattle, and San Jose.

Life science has been a bright spot in the office market in Q1 volume. “These assets trade at high prices, supporting the broader office market,” said Colliers.

The retail sector is seeing more interest as restrictions ease across the nation. Rent collections are nearing pre-pandemic levels and absorption doubled quarter over-quarter.

Grocery-anchored shopping centers and essential-service-providing net leased retail assets remain in high demand.