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Industrial Continues to Shine But Office Falters in 2021 Q3

By: Lawrence Yun, Scholastica "Gay" Cororaton

This writeup reflects data from U.S.-only respondents. For a report on global conditions, see the SIOR Sentiment Survey at SIOR Sentiment Report.

At the conclusion of Q3 2021, economic conditions continue to improve while the surge in Delta-variant cases prolongs the office market’s recovery. Since April 2020, the economy has recouped about 17.4 million jobs of the 22.4 million jobs lost in March and April one year ago. Even as about 5 million jobs still remain to be recovered, labor is becoming scarce, with more job openings (10.4 million in August) compared to the number of job seekers (8.4 million). Retail sales and food services measured in dollar terms are up 16% from one year ago as of September 2020, an indication of strong consumer spending which underpins the demand for industrial space. However, the surge in new Delta-variant cases in the summer months from about 15,000 cases per day to about 150,000 in September has held back full recovery of the office market.

According to SIOR’s quarterly Snapshot Sentiment Report, the conditions in the industrial commercial real estate market have been improving solidly since the pandemic hit in the second quarter of 2020. The SIOR Industrial Index rose to 157.8, up 36% from one year ago and 8% from the prior quarter. Driving the demand for industrial real estate is the surge in non-store retailers, with 12-month dollar sales volume of $1.03 trillion as of September 2021, up from just $765 billion in January 2020. Non-store sales now account for 16% of total retail sales, up from just 6% 2001.

CREI Graph 1

On the other hand, the SIOR Office Index slipped to 92.2, down 3% from the prior quarter, as companies like Google®, Apple®, and Lyft® pushed back their plans for workers to return to the office. As of September 2021, only 13% of the workforce are working from home, with a higher fraction, at 44%, among computer and mathematical worker, according to the Bureau of Labor Statistics report1.

Overall, on account of the strong showing in the industrial market, the SIOR Commercial Real Estate Index2 asset rose to 130.5, up 38% from one year ago and 5% from the prior quarter.

Various indicators point to commercial real estate’s recovery among SIOR members. Respondents reported that leasing activity continues to pick up, with 77% of respondents reporting that leasing activity increased in the third quarter of 2021 compared to one year ago

CREI Graph 2

Respondents also reported vacancy rates to be falling, with 67% of the respondents reporting that vacancy rates are lower than one year ago.

Sixty-five percent of respondents reported that tenant concessions were now favorable to landlords, up from just 26% one year ago.

Less than a majority of respondents reported a “glut” in subleasing, down at 25%, compared to about a third of respondents one year ago.

Additionally, 61% of respondents reported “strong” development conditions compared to one year ago.

Key Results of the 2021 Q2 SIOR Survey on Industrial and Office Market Conditions*

*Reflecting U.S.-only respondents
  • 77% of respondents reported that leasing activity was higher compared to one year ago (73% in 2021 Q2).
  • 76% of respondents reported an increase in asking rents from one year ago (65% in 2021 Q2).
  • 67% of respondents reported lower vacancy rates compared to one year ago (62% in 2021 Q2).
  • 25% of respondents reported a glut in subleasing availability (26% in 2021 Q2).
  • 65% of respondents reported tenant concessions were favorable to landlords (58% in 2021 Q2).
  • 61% of respondents reported development conditions are positive (56% in 2021 Q2).
  • 57% of respondents reported site acquisition conditions are characterized by rising prices (49% in 2021 Q2).
  • 55% of respondents reported investment pricing conditions are above replacement cost (43% in 2021 Q2).
  • 68% of respondents reported local economic conditions have a positive effect on the market’s performance (66% in 2021 Q2).
  • 65% of respondents reported national economic conditions have a positive effect on the market’s performance (67% in 2021 Q2).

1. Bureau of Labor Statistics, https://www.bls.gov/cps/effects-of-the-coronavirus-covid-19-pandemic.htm

2. The survey gathers indicators on sales, leasing, development activity, and national and local economic conditions which are aggregated into an index . There were 209 participants in the 2021 Q4 survey. An index above 100 indicates that market conditions are positive.


Media Contact
Alexis Fermanis SIOR Director of Communications
Lawrence Yun
Lawrence Yun
National Association of REALTORS

Lawrence Yun is senior vice president and chief economist at the National Association of REALTORs. He can be contacted at lyun@nar.realtor

Scholastica "Gay" Cororaton
National Association of REALTORS

Scholastica "Gay" Cororaton is a senior economist and director of Housing & Commercial Research at the National Association of REALTORS. She can be contacted at scororaton@nar.realtor.