The Phoenix-Mesa-Scottsdale area has been named among the 2021 Top 10 commercial real estate markets in the country by the National Association of Realtors.
“The top commercial real estate markets that are expected to outperform the rest of the nation are generally affordable and able to draw new residents with a greater flexibility to work from home,” said NAR’s Chief Economist Lawrence Yun. “These growing markets also offer much lower office and retail rents and are, therefore, able to attract new and expanding businesses.”
Arizona is the only state with two markets on the Top 10 list: Tucson and Phoenix-Mesa-Scottsdale. The other markets, in alphabetical order, are:
Washington-D.C.-based NAR selected the top 10 markets after considering 25 indicators on an area’s economic, demographic, housing and commercial market conditions in the multifamily, office, industrial, retail and hotel property sectors, according to a press release.
Some indicators included gross domestic product growth, unemployment rate, median household income, consumer spending, number of business openings, population growth, homeownership rate, rental vacancy rate, building permits and apartment rent, among other variables.
NAR unveiled the top commercial markets during its inaugural Commercial Real Estate Forecast Summit. The event featured a panel of leading economists who discussed the pandemic’s impact on commercial real estate, including, the multifamily, office, retail and industrial sectors as well as real estate investment trusts, or REITs, the press release stated.
Mr. Yun predicted the U.S. economy will continue to improve in 2021 and expects the commercial real estate market will follow.
“A recovering economy and the near certain job growth will steadily lead to the absorption of commercial properties,” Mr. Yun said in a prepared statement. “The apartment rentals market could once again experience very low vacancy rates by year’s end.”
Calvin Schnure, Nareit’s senior vice president of research and economic analysis, explained that real estate investment trusts, or REITs, have performed well overall in spite of COVID-19, although some variance exists depending on the market segment.
“The impact of the pandemic on commercial real estate varies widely across property types,” Mr. Schnure said in a prepared statement. “REITs have been resilient due to their strong balance sheets and liquidity and solid operating fundamentals when the crisis erupted.
“Some sectors have been harder hit, especially lodging, resorts and retail REITs, while sectors that support the digital economy — including data centers, cell towers and industrial and logistics facilities — have enjoyed a surge in demand.”
Gay Cororaton, NAR’s senior economist and director of housing and commercial research, anticipates the multifamily, industrial and retail sectors will drive the commercial real estate recovery this year, but says it may take longer for office occupancies to reach pre-pandemic levels.
“Multifamily and industrial remain the commercial market’s bright spots,” Ms. Cororaton said. “With wide differences in commercial and apartment rents across metro areas, development will turn to less expensive markets that are closer to the gateway cities. However, office vacancy rates will remain elevated, even with full office-job recovery by the middle of 2022, due to some shifting toward a nationwide work-from-home culture.”
“I expect continued retailer fallout,” added Brandon Hardin, NAR’s research economist. “And as tactical store closures and bankruptcies increase, adaptive reuse and conversions will create opportunities for investors and developers.”