KCRAR Commercial hosted its annual commercial real estate forecast in a virtual format on Thursday, October 22. Dr. Ted C. Jones, senior vice president-chief economist at Stewart Title Guaranty Company, offered his perspective of national developments in commercial real estate during the pandemic and his outlook for the future.
Jones discussed the three “R’s” of real estate and the economy: reinvent, recharge and reignite.
Jones said that last year the real estate industry reinvented the way it did business; giving the examples of virtual tours, virtual online notarizations, the use of e-signatures to close transactions and the proliferation of the restaurant carry-out business.
Jones estimates that compared to 15 months ago, consumers have $2.2 trillion more in their bank accounts, thanks to stimulus money — but, that comes with a cost.
“We go back to March 2020, (when in the ) first time in history we saw both sides of the aisle in my lifetime move and say we’ve got to do something — and we did a massive amount of stimulus. in fact, so much we’re enjoying some of that appreciated inflation we’re seeing right now,” said Jones.
Jones said that as the country recovers from the pandemic, a re-ignition is taking place, and we are seeing a hot economy.
“Every time there is a change, we literally have winners and losers. Last year, commercial real estate was a big loser. But commercial real estate is coming back,” Jones said.
In the United States, total commercial real estate sales year to date is up 75 percent compared to last year, with apartments sales up 115 percent. Industrial property sales haven’t done as well because nobody in industrial wants to sell right now, said Jones.
Jones said the big winners last year and this year were multifamily and industrial properties. The biggest losers have been hotels, retail and offices.
“We’ll see how they come back out. But things are changing. The great American reopening continues,” he said.
The pandemic drove housing to its highest intrinsic value in history. People have been spending more time in their homes, and it’s impacted our quality of life and our lifestyles, Jones said. And, the housing market is so hot because demand is outstripping supply.
Jones said that sales of apartments in the third quarter of this year were the highest in any quarter in United States history. From the beginning of the year through September, median apartment rents in the United States increased 16.4 percent. In comparison, in the three years before the pandemic, apartment rents increased an average of 3.4 percent.
“That’s a five-fold factor increase. Pretty amazing,” said Jones.
Jones said that low-interest rates have been really critical in our economic recovery, but he predicts that interest rates will increase, driving more people to the rental market.
Jones said that in 40 days during March and April 2020, the country lost every job that had been added in the previous 10 years; but, nationally almost 80 percent of those jobs have come back. The Kansas City metro area fared better, he said, having recovered 91 percent of its lost jobs.
Jones predicts that artificial intelligence technology and robots are going to impact future demand for commercial real estate. Citing a 2020 survey conducted by Jones, 43 percent of companies planned to reduce their workforce as a result of new technology.
“You don’t need as much office space. You may need more industrial space because robots take up a lot of room,” he said.
Currently, the office vacancy rate in Kansas City is pretty close to the average historical rate of 16.3 percent. Jones said the Kansas City office market is doing better than many other markets.
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This is part 2 of the KCRAR event held on October 22, 2021. To read the first article, click here.