CRE Sales and Leasing Transactions Increasing, SIOR Brokers Say

The Society of Industrial and Office Realtors (SIOR), a professional association for office and industrial brokers, found in its recent quarterly survey that sales and leasing activity is picking up significantly. The SIOR Snapshot Sentiment Report is a survey of brokers, CRE professionals at the center of largely confidential transactions in the pipeline, that are well positioned to provide insight about the pace and volume of activity in their markets.

The top-level prognosis for office and industrial properties is — as expected — that industrial assets will outperform office properties. However, some of the survey metrics have reached all-time highs.

“The key factor in determining how the industry is doing comes down to the number of transactions that are moving forward,” said SIOR CEO Robert Thornburgh. “And this latest report reveals that despite the Delta variant surge, supply chain issues at the ports and rising inflation, the office market continues its recovery and industrial momentum shows no end.”

The status of sales and leasing transactions continues to improve, with brokers reporting that 82% of deals they are working on are moving ahead as of the third quarter of 2021, a 4% increase over the previous quarter, and a significant 74% improvement over the third quarter of 2020.

Conversely, the percentage of transactions placed on hold or cancelled both dropped to their lowest reported figures since the start of the pandemic, with 12% delayed and just 6% cancelled outright in the third quarter.

Recovery in transaction flow can be largely attributed to the industrial sector, with 85% of deals on schedule, 9% on hold and 6% cancelled in the third quarter. The office sector, on the other hand, saw a dip in on-schedule and on-hold transactions this past quarter, with 75% on schedule (down from 77% in the second quarter) and 17% on hold (up from 15% in the second quarter).

While industrial transaction activity is currently moving swiftly, one industrial specialist from New Mexico cautioned, in an anonymous comment in the report, that though parties may want to move transactions along, new regulations might make them more costly. The professional noted “there is a shortage of inventory [and] regulations for building a new project make it tough for numbers to pencil out.”

Respondents reported an increase in leasing activity as well, with 76% saying activity rose between the second and third quarters, compared to 72% that saw a rise between the first and second quarters. This improvement was fueled largely by leases signed for industrial space, rather than office space.

Eighty-five percent of industrial brokers indicated leasing activity is rising, with 38% saying that third quarter volume was “a little higher” thatn it was in the second quarter and 47% saying it was “much higher.” Among office specialists, 35% found leasing activity to be “a little higher” and 22% said it was “much higher” compared to the second quarter.

An office specialist in Minnesota noted that finished space, available for immediate occupancy, is in demand. “Spaces that are move-in ready are leasing. Tenants have delayed decisions such that when they do have a need it’s nearly immediate.”

To obtain an overall outlook for the market, the survey asks respondents if, and to what degree, they believe conditions in their local markets will change in the coming quarter.

The outlook relating to the industrial sector registered an 8.0 (out of 10), indicating market conditions supporting leasing and sales activity are expected to improve by 1% to 5% over conditions in the third quarter. This 8.0 figure was unchanged from the previous quarter; however, it was 16% above the 6.9 mark registered in the second half of 2020, as the pandemic wore on and vaccines were not yet available.

The outlook for the office sector was lower, registering 6.2 (out of 10), meaning conditions in the fourth quarter of 2021 are expected to remain similar to those in the third quarter. The 6.2 figure posted in the third quarter was lower than the 6.7 figure reported in the second quarter of this year, indicating that office demand may be waning.

This scenario was underscored by an office specialist based in Florida who commented that “landlords are agreeing to shorter term deals at premium rents and are aggressively pursuing longer-term tenants with generous concessions.”

The survey also includes data points relating to asking rents, sublet space, development conditions, and investment pricing.