How Profitable Will Commercial Real Estate Be This Year?

Sixty-nine percent of commercial real estate brokers say they made more money in 2021 than in 2020, according to the latest Apto National Broker Buzz Poll conducted in December 2021. They’re even more optimistic about this year.

Commercial real estate has posted a dramatic recovery ever since the beginning of the pandemic. 2021 marked a big turn for the sector, notably in the multifamily and industrial spaces, as well as a demonstrated resiliency within brick-and-mortar retail, according to the National Association of REALTORS®’ December 2021 Commercial Market Insights.

In fact, investment acquisitions helped the commercial sector in 2021 surpass pre-pandemic levels. “This strong foundation of recovery puts the commercial market on pace for sustained demand for the commercial and investor sectors in 2022,” NAR says in its report.

That’s translated into more business for commercial real estate practitioners. Sixty-six percent of brokers say they completed more transactions in 2021 than in 2020. What’s more, 60% of brokers expect 2022 to be an even better year in profitability, according to the Apto survey.

“The poll results reflect the overall economy’s strength this past year, which translated to most brokers making more money, especially those focused on industrial or multifamily real estate,” says Tanner McGraw, a former CRE broker and the founder of Apto, a commercial real estate broker software company. “But the tide is turning for retail real estate and high-quality office. As we know, brokers can do well whether owners and investors are buying or selling, or whether tenants are adding or shedding space. It’s movement that matters, and we saw considerable business activity in the economy in 2021.”

CRE Sectors to Watch

The multifamily sector, in particular, had a historic year in 2021. Vacancy rates hit a record low in December 2021 while the median asking rent growth reached a record high of 11% year over year, NAR reports. Rental demand has soared since the pandemic began as double-digit home price growth has priced out some aspiring homeowners and turned them into renters.

Further, the industrial property market posted a record year, experiencing a boon due to the continued growth in online shopping. Nearly 700 million square feet of space has been absorbed since the pandemic began, and rents have soared to record highs of 8.4%, NAR reports. Meanwhile, vacancies have fallen to all-time lows.

2022 Outlook

NAR expects demand for commercial real estate to strengthen in 2022, despite an uptick in interest rates largely expected this year. Persistent strong demand and supply will keep commercial real estate strong, NAR says.

The multifamily sector is expected to stay robust. Also, NAR researchers are optimistic about brick-and-mortar continuing to make gains as it solidifies its place in complementing online shopping fulfillment. Retail brick-and-mortar market growth is expected to be largely driven by smaller shops, such as neighborhood centers, strip centers, and single-tenant stores.

Further, the office market will likely continue to see an increase in net absorption as more workers return to the office, even if only on a hybrid work schedule.

Seventy-five percent of brokers who work in an office setting say they have returned to the office following the holidays, according to the Apto survey. “It’s nice to see brokers back in the office leading the way as real estate consumers,” McGraw adds. “The new coronavirus variant is posing a last-minute threat to office returns, but the desire and intent to be in the office is very apparent based on brokers’ response to our survey.”

A table of vacancy rates and asking growth from 2019 to the start of 2022.

Source: National Association of REALTORS®