Investors purchased a record amount of commercial real estate in the third quarter, defying warnings that the Covid-19 pandemic would erode these property values and starve the industry of cash.
Instead, purchases of apartment buildings, life-science labs and industrial properties, which serve as e-commerce distribution centers, rocketed commercial sales to more than $193 billion in the quarter. That is up 19% compared with the same three months in 2019, before the pandemic, and the biggest quarter for commercial property sales ever, according to data firm Real Capital Analytics.
Sales activity for the first nine months of this year totaled $462.1 billion, up 10% from the same nine-month period in 2019 and the highest ever for the first three quarters of any year, Real Capital Analytics said.
The sales were so strong for the hottest sectors during the first nine months of 2021 compared with 2019 that their activity more than offset declining sales for office buildings and shopping centers during that period, according to Real Capital Analytics. Office buildings and malls traditionally have been core to any commercial real-estate rally.
From aspirational residences to major commercial deals.
“Coming out of Covid, we’re actually seeing an acceleration of fundamentals across a handful of sectors and that’s really driving investor attention,” said
the head of real estate Americas for investment company Blackstone Inc., the largest buyer of U.S. commercial property this year, according to Real Capital.
This boom was also different from previous ones because a relatively large number of deals were for single properties, rather than being driven primarily by the largest investors snapping up real-estate companies and portfolios with multiple properties, Real Capital Analytics said.
Investors have flocked to commercial properties in part for the higher yields compared with the bond market. Pension funds, said
senior vice president of Real Capital Analytics, “are not going to be able to hit their 8% targets with just their bond portfolios.”
The surge in sales lifted commercial real-estate prices to a new high, according to an index by real-estate data and analytics firm Green Street. The index, which tracks property owned by real-estate investment trusts, is up nearly 22% from its pandemic low during the summer of 2020 and 8% above where it was before the pandemic.
When the pandemic-driven recession hit the economy, many expected the commercial real-estate sector to nosedive as it had during previous recessions. Big investors raised money for distressed real-estate funds, assuming they could scoop up beaten-down properties at cheap prices.
That widespread damage never happened. Many analysts credit the Federal Reserve for preventing the debt markets from seizing up, which gave even many troubled property owners access to new capital.
In the first nine months of 2021, financial …….