If we were worried about what the investment market would look like after COVID, year-end numbers show us that commercial real estate has rebounded significantly in 2021. Investors forged ahead , pouring money into commercial and multi-family properties. Over $2.5 billion has been invested in the Central Valley in 10+ unit apartments and over $1 million in commercial properties (industrial, retail, office) – the most ever. Historically low interest rates, coupled with rising inflation, have prompted investors to turn to real estate as their preferred investment alternative.
Investors are betting big on apartments
During 2021, there were 82 apartment complex transactions of more than 10 units in the Central Valley, for a total of $423 million. The top four deals accounted for 40% of total sales volume – Parador Townhomes ($63 million) in Clovis, The Grove Merced ($38.2 million) in Merced, Park West Apartments ($23.5 million) in Fresno and Axis at Compass Pointe ($23.5 million). million) in Merced. Cap rates for apartment complexes fell to 5.65%, the lowest since 2005. Demand for these properties has put downward pressure on yields as appreciation peaks. The average sale price of $96,875 per unit was $36,000 above the average for the past 15 years. As investors from outside the Central Valley see apartment prices soar in other parts of the state, and even nationwide, they have flocked to the Central Valley for opportunities. This is evident as 80% of apartment buyers in 2021 came from outside the Central Valley. With few products on the market and strong demand for multi-family properties, apartment sales have been one of the hottest real estate investments.
COVID Drives Huge Year in CRE Sales
Commercial investments (retail, office and industrial) over $1 million also had a great year in 2021 with 355 deals and sales volume of $2.13 billion, just below the peak of 2018 volume of $2.16 billion. During the year, two important transactions stood out. An Amazon facility in Stockton was sold for $105 million and United Security Bank Building in Fresno was sold for $96 million. The industrial market has seen a sea change in the way e-commerce dictates our daily lives. This asset class was particularly attractive to investors last year with 90 transactions, while our market has averaged 45 per year over the past 15 years. The office sector recorded record investment volumes, $350 million and 72 transactions, which is a bit surprising given that the office sector is experiencing its own change in square footage requirements and a increase in remote work. The retail trade had its second highest year in its history with 193 transactions and a sales volume of $822 million. Retail was crushed in 2020 with ever-changing COVID closures and restrictions, but it rebounded with investors and lenders who, in 2021, felt very comfortable diving into these properties .
Promising days ahead
As we head into 2022, the trend of high sales volume and transactions is expected to continue. For apartments, investors are attracted by the need for the asset and the possibility of increasing rents, which will generate higher returns. Even with statewide rent control, as inflation rises, investors will be able to raise rents by 5% plus CPI, with a maximum of 10%.
Commercial properties are also expected to continue to see strong sales volume in 2022, with the main contributors to this forecast being rising inflation, the desire to invest in bricks and mortar and low interest rates which allow buyers to lock in the long term. debt.
Industrial is expected to continue to be the most sought after sector in retail, but also the hardest to find for buyers as there are few products on the market.
The retail sector has seen strong demand due to the long-term stability and passive income of single-tenant properties, with domestic tenants signing leases longer than 10 years. Since COVID, investor demand has steadily increased for well-positioned malls with a good tenant mix. Overall, retail investment sales are expected to remain strong in 2022.
Office will be a sector that offers investors the highest return due to the inherent risk associated with the changing (and uncertain) composition of post COVID offices.
Overall, looking for investors to keep their foot on the accelerator pedal as they seek investments in commercial real estate and apartments as the primary location for their capital in the year after such a strong performance in 2021.
Visintainer Group tracks all sales in the Central Valley and generates quarterly reports. All information collected comes from the CoStar tracking system and Visintainer Group. If you would like the full 2021 summary report for apartments or businesses, please email Brett Visintainer at [email protected].
Brett Visintainer, CCIM is a commercial investment advisor and the director of the Visintainer Group in Fresno, California. Formed in 2018 and built on a real estate investment foundation, Visintainer Group is a client-focused commercial real estate company. The Group has executed more than $450 million in transactions across the United States. Brett specializes in commercial property acquisitions and dispositions and 1031 exchanges for homeowners in the Central Valley, Sacramento and Central Coast markets. He can be reached at 559.890.0320 or [email protected]