Covid-19 Fuels Best-Ever Commercial Real-Estate Sales

Investors set a record for U.S. commercial-property sales last year, betting that the pandemic is reordering how Americans live, work and play.

Real-estate buyers loaded up on warehouses, which serve as fulfillment centers for the e-commerce boom. They bought apartment buildings to capitalize on record high rents. They paid up for resorts and vacation-oriented hotels that benefited from the resurgence in travel to leisure destinations.

“Did the pandemic accelerate these trends?” asked Spencer Levy, senior economic adviser at real-estate firm

CBRE Group Inc.

“You bet it did.”

Overall, commercial-property sales totaled a record $809 billion in 2021, according to data firm Real Capital Analytics. That was nearly double 2020’s total, and it exceeded the previous record of about $600 billion in 2019.

The surge in activity reflects investors’ views that work and lifestyle changes brought on by Covid-19 aren’t fleeting. They are wagering hundreds of billions of dollars on that belief.


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Investors last year snubbed properties that had been favorites for years but started to look less reliable during Covid-19. Buyers had limited interest in most urban office towers and retail in coastal cities such as New York and San Francisco, concerned that remote work could permanently reduce demand.

Manhattan, which typically has been at the top of the sales list, ranked ninth in 2021 with $18.7 billion in sales, Real Capital said. “It’s never been like that,” said Jim Costello, senior vice president of Real Capital. “Manhattan has just fallen off the map relative to its size.”

Instead, investors looked to Sunbelt states where companies have been attracted by lower taxes, warmer weather and cheaper housing costs. Dallas, which had sales of $48.9 billion and Atlanta, with $37.1 billion, were the top two volume leaders. Suburban office buildings in states like Florida and North Carolina also drew a greater percentage of investor capital than in the past.

“There are certain geographies that look to be winners on the office side,” said

Stuart Rothstein,

chief operating officer of the real assets group of

Apollo Global Management Inc.,

which has been buying properties in Florida, Austin and other Sunbelt locations.

Fueled by the pandemic-related activity, the value of properties owned by real-estate investment trusts rose 24% last year and was at a record level in December, according to analytics firm Green Street.

Sunbelt cities such as Austin saw strong commercial real-estate sales in 2021.


Thalia Juarez/The Wall Street Journal

The surge in commercial real-estate sales echoed the booming housing market, where existing-home sales reached a 15-year high in 2021 and home prices grew at a record pace. The housing market similarly reflected low borrowing costs and ways the pandemic shifted more work remotely.

Still, some analysts say, major cities should reassert themselves to a degree once the worst of the pandemic is over. Investors still like the size of the urban labor forces and the scale of big cities’ infrastructure. New York City and Chicago already are benefiting from investment in the highest quality office buildings.

“There will be money rotating back into the big city markets,” said

Stephen Livaditis,

a managing director of real-estate firm Eastdil Secured.

Real-estate sales picked up last year as the economy strengthened, then took off after the pace of vaccine rollouts picked up. Cheap financing costs ensured money was readily available. Low interest rates also encouraged investors to shift funds into higher-yielding assets, such as real estate.

The Federal Reserve’s easy-money policies helped make plenty of debt available for deals. Banks, insurance companies, nonbank lenders and others made a record $690 billion in commercial property loans in 2021, up 8.7% from 2020 and 2.1% from 2019, according to data firm Trepp Inc.

Institutional investors, forced to the sidelines during the earlier months of the pandemic, tried to compensate last year by buying more property directly or by investing in real-estate funds, fund managers said.

“Whether you’re a pension fund, an insurance company or an endowment, you need to put money out,” said

Josh Zegen,

managing principal of Madison Realty Capital, a real estate private-equity firm that closed a $2.1 billion debt fund earlier this month.

The most popular commercial property type last year was rental apartments, whose owners have been able to keep raising rents during the pandemic in part because for-sale housing is too pricey for many to afford. Multifamily sales totaled $335.3 billion, up 128% from 2020, according to Real Capital. Industrial property was in second place with $166.1 billion in sales, up 56% from last year.

Hotel sales totaled $44.5 billion last year, more than double 2020’s volume but below its recent highs, Real Capital said. The appeal of business-oriented hotels, especially in top cities, waned with work travel still slumping. But investors paid top dollar for luxury resort properties, from the Four Seasons Resort Orlando to luxury hotels in California wine country.

Office buildings had sales volume of $139.2 billion, well short of the category’s record year, as demand for suburban and Sunbelt state office properties failed to offset weak investor demand in the biggest cities for all but the highest quality towers.

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