Bubble watch: Will landlords’ winning streak last?

“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: Talk about a winning hand. Last year, all 11 slices of one commercial real estate index posted gains — and 10 niches had double-digit increases.

Source: Green Street’s Commercial Property Price Index tracks values of large, “institutional quality” income-producing real estate across the nation.

The Trend

As the economy adjusted to life in the pandemic era, a buying binge for commercial property made the task of separating the industry’s winners and losers a study in the size of appreciation rates.

It may have been a tough year for landlords, operationally speaking. But property owners were rewarded, at a minimum, with appreciation — that’s the increase in asset values — whether tenants were consumers or corporations.

Commercial property values in all segments tracked by Green Street rose 24% last year to a record high — a sweet U-turn from an 8% drop in the nine months of 2020 following the coronavirus outbreak.

Why? Heavy demand for space slashed vacancies in many real estate niches. As a result, rents jumped, whether the properties housed people or goods. And investors wanted to get into the game.

So, in yet another of the pandemic era’s odd real estate twists, the 2021 price rebound put Green Street’s all-property benchmark up 14% since COVID-19 smacked the economy.

Newport Beach-based Buchanan Street Partners bought a new, three-story, climate-controlled self-storage facility in Vista for $34 million. The 112,000-square-foot building in northern San Diego County includes 1,200 self-storage units and 50 RV parking spaces. (Courtesy of Buchanan Street Partners)
The Dissection

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We should note that it’s not been a universal, one-way road higher for property owners and investors?.

Consider how the 11 commercial property niches tracked by Green Street fared, ranked by their 2021 price gains; how the categories did in a harsh 2020 once the pandemic’s business chills struck; and the total value change during the pandemic era.

At a minimum, these rankings are a fair summary of which properties have been most in demand over the past two years  …

No. 1 Self-storage: When lives are disrupted — such as the pandemic and its short, steep recession — folks find places to stuff their goods. That’s why this niche was up 66% in 2021. That followed a flat performance in 2020 in the months after the arrival of the virus. It adds up to a pandemic era gain of 66% — the No. 1 performance among the 11.

No. 2 Industrial: Everybody wanted everything yesterday, so companies needed space to move and store goods, too. Values of warehouses and factories surged 41% in 2021 after rising 9% in virus-chilled 2020. Pandemic era total? A 53% increase — No. 2.

Land and Houses U.S.A. has bought the 120-room Springhill Suites Anaheim Maingate hotel in Anaheim from Anaheim Resort Hotel LLC. Terms of the deal were not disclosed. Rod Apodaca at RJA Hotels brokered the deal. (Courtesy of RJA Hotels)

No. 3 Lodging: Once lockdowns ended, many folks wanted to get out of town. Those urges to travel powered …read more

Source:: The Denver Post – Business

      

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