Jones Lang LaSalle Incorporated : Economic improvements and increasing activity generate positive momentum for commercial real estate
CHICAGO, December 12, 2021 – The unprecedented disruption to the economy from COVID-19 – and equally unprecedented policy responses – have resulted in an uneven recovery that continues to reshape commercial real estate. Recent activity at the national level and key economic performance indicators give cause for optimism about 2022.
“This disruption presents opportunities,” said Christian Beaudoin, senior director of research, parting JLL in unprecedented ways. Investors and tenants are positioning themselves for the future, not just to survive, but to thrive. ”
While the market continues to be volatile, we are getting a better sense of our short-term reality, particularly how employers will move forward in making decisions about commercial real estate. According to JLL research, economic indicators and drivers are approaching pre-pandemic levels, leading to additional activity and positive momentum.
Recently reported employment figures showed that the employment recovery is now 97% of pre-pandemic levels, but varies by industry. Employers using offices, such as financial and professional services, have effectively fully recovered, while those in the leisure and hospitality sectors are still nearly 10% below their pre-pandemic levels.
In addition, venture capital funded sectors receive an inflow of funding that outperforms overall stock markets by more than 71%. Investors are targeting the growth of emerging technologies as well as the industries reshaped by the pandemic. Life sciences, logistics and fintech are among the main beneficiaries.
As a result, the U.S. office market has seen rental volume grow for four consecutive quarters as tenants increasingly rely on convenience to attract employees back to the office. This ongoing flight to quality is expected to grow to a projected 12% performance gap between differentiated and commodity assets over the next three years. JLL Research found that despite the overall subdued leasing activity, which is 29% below pre-pandemic levels, volume has increased by over 50%.
The industrial sector recorded 106 million square feet more absorbed than delivered in 2021, the largest margin on record, which, according to JLL Research, signals a serious mismatch between supply and demand. Still, the insatiable demand has the current construction pipeline spanning more than 400 million square feet, even if material shortages push delivery dates further into the future. The coastal markets with restricted supply saw the greatest rental growth in light of sustained demand from urban logistics.
Retail is seeing positive signs of recovery after seeing net absorption volume growth for four consecutive quarters. The third quarter of 2021 was its highest level since 2017. However, there is a clear geographic difference in retail recovery rates in the United States, with Sun Belt markets outperforming those in the Northeast and California. Urban retail performance is still well below pre-Covid levels and the recovery will depend on the return of office workers to the cities as well as international tourism.