Commercial Real Estate Forecast: Urban Multifamily Properties Will Rebound in 2021

Rhea-AI Summary

Moody's Analytics has released new forecasts for commercial real estate (CRE) rents and vacancies across the U.S. The apartment sector shows signs of recovery with effective rents projected to rise 2.1% in 2021 after a 3.0% decline in 2020. However, the office sector faces challenges, with vacancy rates expected to climb to 19.2% and rents to fall by 5.9%. Retail is also anticipated to decline with rents dropping 6.8% and vacancy rates hitting 12.3%. In contrast, the industrial sector is expected to thrive, with rents forecasted to increase by 3% and vacancies to decrease to 10.3%.

Positive

• Apartment sector shows recovery with effective rents expected to rise by 2.1% in 2021.
• National average industrial sector effective rent projected to increase by 3%, the strongest among core property types.
• Industrial sector to see a decline in vacancy rates, predicted to fall by 40 basis points to 10.3%.

Negative

• Office sector vacancy rates expected to rise to 19.2%, surpassing previous high of 17.6% in 2010.
• National average effective office rents projected to decline by 5.9% in 2021.
• Retail sector rents forecasted to drop by 6.8%, with vacancy rates reaching an all-time high of 12.3%.

Moody’s Analytics today announced new forecasts for commercial real estate (CRE) rents and vacancies covering eight property types and more than 3,000 submarkets across the United States. These forecasts reflect the latest Q1 data on US CRE markets available via the REIS platform, the cornerstone of Moody's Analytics CRE Solutions.

The outlook for the apartment sector has taken a positive turn, with effective rents expected to return to near pre-pandemic levels in 2022. National average effective rents fell a record 3.0% in 2020 and are now forecast to rise by 2.1% in 2021. Multifamily markets in dense urban areas such as New York, the Bay Area, and Washington DC were particularly affected by the pandemic but have likely hit their rent low point and begun to recover. Meanwhile vacancy rates across the US are expected to stabilize this year, staying at a national average of 5.2%.

“We anticipate that the combination of returnees and first-time movers, now attracted by lower rents, will be enough to stabilize the apartment sector in key urban centers,” said Thomas LaSalvia, Senior CRE Economist at Moody’s Analytics, “However, the office sector in these areas still has a ways to go before recovery.”

Much uncertainty surrounds the fate of the office sector and this will likely lead to continuing distress this year. Vacancy rates are forecast to rise to 19.2% in 2021, surpassing the previous cyclical high of 17.6% in 2010. National average effective office rents are projected to fall 5.9% in 2021 from the net effect of hybrid working during COVID-19, intensifying a decrease of 0.6% in 2020.

Similarly, we expect the retail sector to continue to deteriorate in 2021 with national average effective retail rents forecast to fall a further 6.8%. Vacancy rates are also predicted to reach an all-time high (12.3%) in 2021 as brick-and-mortar retailers struggle to compete against rising e-commerce sales.

As the retail sector suffers the consequence of the shift to e-commerce, the outlook for the industrial sector is looking up. “We expect the industrial sector to benefit from tailwinds from the robust economic forecast and the continued rise in e-commerce,” said Dr. LaSalvia, “The need to warehouse inventory and match consumers’ expectations for expedient shipping will provide more than enough absorption to push rents higher and vacancies lower.”

We now expect the national average industrial sector effective rent to rise by 3% in 2021, compared with our previous forecast of a 0.2% increase—the strongest predicted rent growth among the core property types. The industrial sector is also the only property type with expected declines in vacancy rates in 2021; we predict a fall of 40 basis points to 10.3%.

CRE market participants can access these forecasts through the Moody’s Analytics REIS platform and read more on the Moody’s Analytics CRE Solutions Insights page.

About Moody’s Analytics

Moody’s Analytics provides financial intelligence and analytical tools to help business leaders make better, faster decisions. Our deep risk expertise, expansive information resources, and innovative application of technology help our clients confidently navigate an evolving marketplace. We are known for our industry-leading and award-winning solutions, made up of research, data, software, and professional services, assembled to deliver a seamless customer experience. We create confidence in thousands of organizations worldwide, with our commitment to excellence, open mindset approach, and focus on meeting customer needs. For more information about Moody’s Analytics, visit our website or connect with us on Twitter and LinkedIn.

Moody's Analytics, Inc. is a subsidiary of Moody's Corporation (NYSE: MCO). Moody's Corporation reported revenue of $5.4 billion in 2020, employs approximately 11,500 people worldwide and maintains a presence in more than 40 countries.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210503005530/en/

FAQ

What are Moody's forecasts for commercial real estate rents in 2021?

Moody's projects effective rents for the apartment sector to rise by 2.1% in 2021, while office rents may fall by 5.9% and retail rents by 6.8%.

What is the outlook for the industrial sector according to Moody's Analytics?

The industrial sector is expected to experience a 3% increase in effective rents and a decline in vacancy rates to 10.3%.

What are the predicted vacancy rates for the office and retail sectors in 2021?

Office vacancy rates are forecasted to rise to 19.2%, and retail vacancy rates are expected to hit 12.3% in 2021.

How did the pandemic impact the apartment sector in the U.S.?

The apartment sector saw effective rents fall by a record 3.0% in 2020 but is now expected to recover in 2021.