The 18 Deals And Trends That Defined Real Estate In 2021

Nearly two years into the pandemic, about two-thirds of office workers are still working from home. There was supposed to be a large return to the office after Labor Day. Then the delta variant hit, and people stayed home. If office usage doesn’t get back toward normal levels, it would be bad for CRE and could be bad for cities writ large. Some think Q1 2022 could be when the masses (maybe even three-quarters of employees) go back to traditional workplaces, though the omicron variant may have something to say about that.

Survey after survey has found large swaths of working adults just don’t want to go into the office anymore, or only want to go now and then. And as the economy has shifted to an employees’ market under a labor shortage, what the people want is more important than it used to be. 

Companies are responding in varied ways, with some expanding remote options, many Wall Street firms taking hard lines mandating office presence and some trying to lure employees back voluntarily. CRE itself is caught up in the struggle of sorting out strategy — two-thirds of firms in the industry are going at least partially virtual, according to a Deloitte study, but 77% of CRE job postings reviewed by Bisnow say they will require full-time office presence. Though a fair amount of the discussion about encouraging workers to come back has focused on amenities or vaccination rates and mandates, some experts say improving workplace culture would be more impactful. 

Photo: Unsplash/Drew Beamer

When the Democrats took control of the White House and the Senate in January, many in CRE were worried about the future of some beloved programs. So far, the (barely) unified Democratic government has left 1031 exchanges, capital gains taxes, probate rules on inherited property and the opportunity zones program untouched.

Some major CRE-relevant things have happened, though. President Joe Biden signed an infrastructure bill into law that will eventually dole out $550B for new highways and transit systems, updated power grids, increased broadband access, expanded ports and airports and more. A new law requiring LLCs making real estate purchases to disclose their ownership is getting traction with a new strategy for implementation released in December. The $2 trillion Build Back Better bill, which would fund affordable housing, anti-climate change initiatives, research and development/innovation, and social support like childcare and healthcare, has passed the House and is being negotiated in the Senate, though the latest news makes its future look bleak. 

Photo: Flickr/White House/Cameron Smith

Apartment rents are skyrocketing this year. U.S. median rates have risen 17.8% since the beginning of 2021, according to a December Apartment List National Rent Report. In comparison, rent growth during the same periods in the years from 2017 to 2019 averaged 2.6%. Occupancy and absorption were also at record levels through the year, and major multifamily landlords are in good shape and looking to build — new apartment starts reached their highest level since 1974. 

Investors are taking notice. U.S. multifamily investment volume totaled $179B through the first nine months of 2021, according to CBRE, putting this year on track to crush 2019’s record of $193B. The increased competition and resultant price spikes on the buy side mean new owners are seeing yields dropping even as net operating income rises.

But while the industry rakes in cash, an expanding number of people are unable to find housing they can afford, both at the lowest levels of income and even in the middle market. The 2020 census showed a dearth in new units being created — the population grew 7.4% in the last decade, but the housing stock only grew 6.7%.

The pandemic exacerbated the problem. Biden extended the federal eviction moratorium after he took office, then let it expire, then reinstated it, then saw it overturned by the Supreme Court days later. Some cities have kept local moratoriums going with no real end in sight. Rental assistance funds have been helpful in keeping people housed while also providing for landlords — when they were actually distributed. Federal funds have since run out, despite the Treasury Department saying for months that it would send more money to cities that handled their funds well. Meanwhile, landlords have had to sort out how to handle a wave of nonpayments and what they can and can’t legally do with their units.

Photo: Wikimedia Commons/Alex Lozupone

Building was a lot harder in 2021 than most years: Everything took longer and cost more than expected. Many materials saw double-digit month-over-month increases and triple-digit year-over-year increases in 2021. Lumber pricing reached a new record high in May, dipped some in the late summer and early fall (though still above long-term averages), and now is steadily on the rise again. Pricing for other materials has continued to grow unabated.

Supply chain issues, trade tariffs impacting sourcing and long-simmering but worsening labor shortages all slammed developers and general contractors and extended construction timelines dramatically, with some items taking two or three times as long as usual to arrive. 

Though some of the price and timeline increases are directly related to the pandemic (such as plant shutdowns from Covid-19 outbreaks), experts say there are other factors, and they expect these challenges to be around a long time. JLL said in October it predicts construction costs will continue to rise at a faster-than-average rate for at least 12 more months. Some developers are responding by abandoning or delaying projects, while others, especially in the hot industrial sector, are passing costs on to tenants.

Photo: Bisnow Archive/Ian Johnston

The world watched in shock as the Champlain Towers South Condo building, a 12-story, 130-unit beachfront condo building in the Miami suburb of Surfside, Florida, crumbled in the early morning of June 24, leaving 98 people dead. 

Problems at the property had been apparent for years — the condo association for the building had known since at least 2018 that millions of dollars in repairs to the structure’s concrete were necessary. The association was sued in 2015 for failing to properly maintain outside walls and common areas. At the time of collapse, the property was beginning its 40-year recertification, and its roof was being redone. 

The tragedy brought focus to deferred maintenance issues in condo buildings more broadly — the ownership and condo board structure of these properties can complicate the process of repairs, and a study found few properties keep sufficient reserves to pay for them.

The Community Associations Institute, an international organization for education, governance and management of condominiums, housing cooperatives and homeowners associations, issued new guidance in November for these groups regarding maintenance schedules and reserves. It also recommended federal government solutions such as the creation of grants, loans and tax reductions to make it easier for condo associations and individual owners to fund inspections and repairs. Condo boards trying to get inspections redone to identify problems may hit another hurdle: The inspection industry is understaffed.

Champlain Towers have been fully razed, and the site is now up for sale. A judge has directed funds from the sale be used to compensate victims and their families. Meanwhile, lawsuits have begun, not only against the developers and contractors of Champlain, but also of nearby condo properties that are suspected of similar deficiencies.

Photo: Wikimedia Commons/Miami-Dade Fire Rescue 

When the enormous cargo ship Ever Given got stuck in the Suez Canal for about a week in March, the world got a crash course in the supply chain, already straining under the weight of pandemic-related closures in East Asia where much of the world's electronics are manufactured.

The ship was a perfect metaphor for the tenuous nature of the whole system — the vessel was lodged for days, significantly threatening businesses and holding back broader economic recovery. But the supply chain's issues are far worse than one clog in a canal.

The biggest pain points have been at the ports, especially Los Angeles and Long Beach. Labor shortages and a lack of container yard space have kept boats lined up, unable to unload. The federal government has appointed a port envoy and earmarked funds to solve these problems, but it will take years — if money is even the answer. 

Retailers, just beginning to see in-person sales improve since the pandemic, are particularly at risk from not getting their products or seeing prices spike amid shortages. CRE, too, has been negatively impacted by the supply chain crisis, especially in terms of receiving construction materials or in retail tenants reaching the last straw and closing up shop.

But the industry has seen some benefits, namely from onshoring or nearshoring efforts and the push to increase U.S. inventory, which would drive manufacturing, warehouse and container storage demand. Industrial tenants have been asking for 15% to 20% more space to stockpile goods, according to Duke Realty Corp. Regional Senior Vice President Stephanie Rodriguez.

The Federal Trade Commission has launched an investigation into the causes and impacts of the supply chain crisis, probing whether these disruptions have led to specific bottlenecks, shortages or anticompetitive practices that contribute to rising prices for consumers. 

Though problems persist, some experts predict the worst of the bottlenecks are behind us now.

Photo: The Suez Canal Authority

The merger and acquisitions market was on fire this year. There was an all-time record volume of REIT mergers and acquisitions through the first three quarters of the year: $108B compared to the previous high of $103B across the full year of 2006.

Why so many? Pent-up demand from deals paused in 2020, a widening in haves and have-nots from economic pain caused by the recession, stockpiled cash and historically low interest rates making capital cheap and easy to get all combined to juice transactions.

Some significant M&A deals in CRE this year included Weingarten and Kimco Realty’s merger into a retail landlord giant with a total enterprise value of $20.5B, Blackstone and Starwood teaming up to buy Extended Stay America for $6B, Industrial Logistics Properties Trust’s purchase of Monmouth Real Estate Investment Corp. for $4B, PIMCO’s purchase of Columbia Property Trust for $2.2B and EQT Group’s $1.8B acquisition of Exeter Property Group.

One notable chunk of this activity was the privatization of data center giants. There were five public data center REITs at the beginning of 2021, but soon there may be just two after three major acquisitions were agreed this year: Blackstone’s purchase of data center REIT QTS Realty Trust for $10B, KKR and Global Infrastructure Partners agreeing to buy CyrusOne for $15B and American Tower’s reported deal to buy CoreSite for more than $10B nearing finalization. Market experts say selling and going private will help these data center firms scale more quickly. 

Photo: Wikimedia/Victorgrigas

Amazon had previously said it was “really agnostic” about whether it leased or owned its distribution centers, but it has historically leaned heavily toward leasing — at the end of 2020, the company leased 285M SF of non-office and retail space in North America but only owned 8.4M SF. In the last two years, Amazon was the dominant leaser of industrial space, accounting for huge percentages of the deals inked in 2020 in particular.

In 2021, the winds shifted. Though Amazon hasn’t formally announced a change of strategy, Bisnow first reported that the e-commerce giant now prefers to buy or develop its own properties, especially larger assets and last-mile delivery centers. That could cause quite a shakeup in the highly in-demand asset class — industrial investors have been making big money off leasing to Amazon or selling buildings it occupies, as the brand draws a premium, and companies looking to build industrial portfolios could struggle to compete against the deep-pocketed retailer.

Photo: Wikimedia/Álvaro Ibáñez

It took two years and a new way of doing it, but WeWork is finally a public company. The trimmed-down coworking pioneer hit the stock market in October after finalizing a merger with special-purpose acquisition company BowX Acquisition Corp. Analysts were moderately optimistic about how WeWork, at a reduced valuation of $9B, would fare on the public market. It opened at $10.31 per share and spiked to nearly $15 on Oct. 25 but has been on the decline since then. As of Dec. 15, it is trading at $7.47 a share. 

WeWork is still losing money, but those losses are shrinking, and CEO Sandeep Mathrani is projecting it will be profitable by the end of 2022. (He had previously said it would happen by the end of 2021, but he extended that out when the delta variant knocked around the office market.) The firm, which has a new federal contract in hand, is leaning away from its typical subleasing model and more into pay-as-you-go and hub-and-spoke models to help it get there.

SoftBank Group, which has invested $18.5B into WeWork over the past few years, still owns a majority stake in the firm, and pre-merger investors in the SPAC, including Cushman & Wakefield, owned a combined 8% when the company opened trading.

Though the SPAC process, in which “blank check companies” raise money before going public with the sole intention of acquiring a private company, seems to have worked for WeWork, it hasn’t lived up to the promise it held last year. Many major real estate investors have seeded SPACs, but the amount of money being raised is slowing, and many SPACs are having trouble finding companies to acquire. The clock is ticking: SPACs typically have two years to invest or they must return investors' money. 

Some multibillion-dollar CRE SPAC deals have happened in 2021, such as a $3.4B deal for data center company Cyxtera Technologies; a $2.2B deal for SmartRent.com Inc. and a $1.5B one for Latch, both proptech firms; and a $1.2B deal for hotel and coworking company Selina. Hospitality firm Sonder is slated to go public via SPAC, but has downgraded its valuation to just shy of $2B and pushed it back to January. One headline deal fell through altogether: Houston billionaire Tilman Fertitta pulled out of an $8.6B deal to take his restaurant, entertainment and casino company public via SPAC, saying he determined he’d rather stay private. 

Photo: WeWork Media Resources

One of the big losers of the pandemic has been an asset class that was already in decline. U.S. malls have lost one-third of their value since a 2017 peak, according to Green Street, and there was a wave of defaults this year. Simon Property Group intentionally let multiple smaller and less profitable malls be taken over by lenders, and those malls’ values were slashed by up to 88%. 

Brookfield also turned major malls over to their lenders, and Unibail Rodamco Westfield is reportedly looking to sell off part or all of its 27-mall U.S. portfolio next year to lessen its debt load. It thinks 2022 will be a good year for mall sellers, but Simon and Brookfield also both tried and failed to sell assets before voluntarily surrendering them.

It isn’t all failure and pain; many malls are being earmarked for new life via renovation. And CBL Properties, which went bankrupt in late 2020, came out of it reorganized and with $1.7B less debt this year.

But all in all, experts agree the mall asset class is a shrinking one. CBRE Research predicts the contraction of as much as 20% in total U.S. retail space by 2025, with most of the drop coming from the closure of Class-B and Class-C malls. Many, especially Class-B properties, will be converted to other property types. Meanwhile, the UK may be done with building shopping centers altogether — there are zero of any kind in the pipeline and experts don’t see that changing anytime soon. 

Photo: Wikimedia Commons/Jtalledo

Life sciences was the breakout asset class of 2021. Vacancy is nearly nonexistent in major markets despite record development levels, rents are rising, and investment is blowing up for lab/office space as well as biomanufacturing space.

Despite a massive construction pipeline, demand far outpaces supply by so much — the gap is nearly 3M SF across the top 12 markets, according to CBRE — that some landlords in the Boston area this year have paid tenants to vacate their leases early so they could bring in someone new at higher rents. “Speed to market” has become the buzzword, and developers race to put up space that life sciences firms say they need yesterday.

The pandemic helped drive the sector’s growth as work on vaccines spurred, and will continue to spur, research and development. The MEDS in America Act, a bill introduced in the House, would allocate billions of dollars to upgrade mRNA vaccine manufacturing capacity, which would help production in this pandemic and in any future ones. Multiple other bills making their way through Congress would funnel additional money to life sciences R&D.

Fundraising was intense in 2021, both in terms of venture capital for life sciences companies themselves and in terms of real estate funds looking to invest in the property that will support them, including from brand-new entrants into the sector: Greystar and the Canada Pension Plan Investment Board forged a life sciences joint venture with $1.2B in equity, Hines intends to spend billions in the space in the next two years, and a new company, Life Science REIT, was launched this year after raising £350M in an initial public offering, the biggest REIT IPO in the UK since 2016. Most recently, Bain Capital launched a fund eyeing $9B in life sciences real estate investment.

The space is dominated by a handful of major players, and new entrants in the space, from investors to contractors, may find it more challenging than expected. The spaces are specialized and expensive and difficult to build, and they require uniquely trained workers to build, sell or operate. A lack of widely available data also keeps the pool small.

Many cities, like Baltimore, Chicago, Los Angeles, Houston and Wilmington, Delaware, are trying to get in on the game in a bigger way. Boston and Cambridge are starting to say they have too much of what others consider a good thing, and residents are pushing for a moratorium on lab development. Beyond NIMBYism, growth in life sciences construction is being held back by supply chain issues, both for traditional building materials and for specialized items like microchips. 

Photo: Pixabay/Jarmoluk

Inflation, dormant for 15 years, is back. U.S. consumer pricing rose 6.8% in November, the fastest increase since 1982, and UK prices are on the rise as well. Inflation doesn’t affect the property industry evenly. Landlords in some property types can ride inflation to push rents, and real estate is often portrayed as a hedge against inflation, a smart investment that can drive cash flow. Others say that claim is overstated — good real estate does well in an expanding economy and struggling real estate doesn’t. Restaurants, and thus retail landlords, could be at particular risk from increasing costs, and inflation could continue to spur construction cost spikes, already a major burden on developers. The Federal Reserve has forecast it will raise interest rates three times in 2022 to hedge against inflation, which will take the edge off the positive lending environment CRE has enjoyed for so long. As experts are quick to point out, though, increased rates would remain well below historic levels.  

Photo: Pixabay/mohamed_hassan

Up until very recently, single-family homes were almost entirely owned by individuals or small investors. That dynamic is shifting quickly as major institutions this year took notice of the space and started putting huge war chests toward buying or building houses to rent out, often in large master-planned communities. Real estate investors of all sizes bought 18.2% of U.S. homes purchased in Q3 ‘21, according to Redfin, the highest percentage on record since it began tracking the market in 2000. Many of these investors hope to capitalize on a younger demographic’s move to the suburbs, a trend intensified by the pandemic.

JLL is one CRE player particularly invested in the space: It launched a single-family rental investment advisory arm in January, took a minority interest in SFR property manager and SFR online marketplace operator Roofstock in March, and paid $560M in August for a 47% interest in a 4,000-home portfolio assembled by Amherst Residential. Other major investors recognizable to the CRE crowd are Blackstone, which bought Home Partners of America and its 17,000-home portfolio for $6B, and Invesco Partners, which partnered with Mynd Management to buy $5B in SFR in three years. Apache Capital launched the UK's first branded, purpose-built single-family build-to-rent platform in May, with an initial pipeline of 3,000 homes costing £1.6B. Aviva Investors and Goldman Sachs have also gotten into the game in the UK. 

There are concerns about all this investment. Some worry the industry may create a bubble by paying too much or underwriting too aggressively. And some say institutions could cut out individual homeowners, removing a pathway for families to build generational wealth.

Photo: Wikimedia Commons/IDuke

Texas has been on a roll for years, soaking up corporate relocations and population growth with its low cost of living and low barriers to entry. That continued in 2021, but the state took some heavy blows this year that could set it back in the economic development race. Winter Storm Uri, which crippled the state’s power system in mid-February and led to hundreds of deaths, brought attention to how a lack of taxation and regulation in Texas, though attractive to businesses, can be a serious problem that could begin to hinder growth. And though corporate reaction to a Texas law that took effect in September banning abortions after six weeks of pregnancy was muted, that, too, has the potential to make companies or individuals rethink relocating to the state. 

Texas proponents say neither is enough to stop the gravy train of relocations, and sizable deals inked later in the year offer evidence: Tesla announced in October it is moving its HQ to Austin, Samsung Electronics announced in November it will build a $17B manufacturing plant in Taylor, a small town outside of Austin, and tech firm MD7 is moving its 200-person HQ to Allen, a suburb of Dallas. CBRE also doubled down on Texas, announcing in November it will create 1,000 new jobs in its Dallas HQ. One project to watch to see if the year’s events have changed the state’s appeal: Goldman Sachs is reportedly looking to build out a major hub in Dallas, but there has been no update in months. Fort Worth lost out to Atlanta on a $5B electric vehicle plant by Rivian in December, but it may have simply been outbid.

Photo: Wikimedia Commons/Famartin

Many eyes were on China throughout the fall as China Evergrande Group, the second-largest property developer in the country, came to the brink of and dodged default multiple times. The company’s turmoil first grabbed headlines in September, when it had $305B in liabilities at risk. It sold off some jets and investment shares to bring that down to $255B by mid-November, averting default for the third time in as many months. Yet it was to no avail — Evergrande defaulted in early December, the largest ever such downfall in China.

Evergrande is not alone in its struggles — about two-fifths of Chinese development companies are at risk of defaulting on bonds sold to international investors, according to research from Japanese financial services firm Nomura Holdings reported by The Wall Street Journal. Multiple Chinese real estate groups have already defaulted in 2021, and developer Oceanwide has been handing U.S. properties over to creditors or selling them at a loss. These defaults, especially Evergrande’s, could cause ripple effects globally because of the size of China’s economy and its international trade relationships. The Federal Reserve has warned troubles in China’s property sector may threaten the U.S. 

Photo: Pixabay/Moerschy

2020 was a year of racial reckoning, and the conversation did not let up in 2021. Though it will take years to see real change, many companies made small but meaningful progress in improving diversity, equity and inclusion. Bisnow’s annual analysis of racial and gender representation in the C-suites and on the boards of the largest CRE firms showed stats ticking up, but unevenly, with more progress at publicly traded companies and little movement at private brokerages and developers. People of color now account for 11% of the senior executives at the 91 CRE firms Bisnow analyzed, and women account for 23.5%. Many companies announced programs or funds intended to diversify their workforce down the road. CBRE announced in December it is donating $7.25M to a dozen community groups it hopes will lead to a deeper, more diverse pool of candidates. Stanhope and Women In Planning both launched mentorship programs for women in UK property to improve retention.

Diversifying real estate companies is being held back by traditional pay structures, especially at brokerages, where commission-based salaries effectively bar people without a deep financial safety net. JLL formed a $4M fund in June to tackle this problem by providing higher draws for entry-level brokers who are women and people of color, and launching a program to help pay off student loans for new analysts in its capital markets team.

Another focus throughout the year was on ensuring developers of color have opportunities to shape neighborhoods. Amazon is helping launch a $21M professional development program to train real estate developers of color. Cities like Chicago and Philadelphia have programs incentivizing or pushing the use of minority-owned firms in projects, though government rules about the use of minority and women-owned business enterprises have a spotty track record.

Photo: Unsplash/Christina, wocintechchat.com

Climate change and sustainability moved more into the CRE spotlight this year. ULI and PwC highlighted it as potentially the biggest threat facing the industry. In the United States, the Biden administration has made fighting climate change a priority — re-entering the Paris Climate Accords was one of Joe Biden’s first acts as president. The $1.2 trillion infrastructure package passed into law in November includes billions to fight climate change, including $55B for building retrofits. The $1.7 trillion Build Back Better bill, still making its way through Congress and now looking at risk of ever passing, could put hundreds of billions in the hands of CRE players to improve the sustainability and resiliency of buildings. Some cities and states have been making their own strict rules to limit energy use or carbon emissions: California is mandating the use of renewable energy in multifamily construction, Boston is gathering buildings’ greenhouse gas emissions data in its push to be a zero-net carbon city by 2050 and NYC just passed a ban on gas appliances in new buildings. The UK is being even more aggressive — in November, the UK government denied planning permission for a new skyscraper-height viewing tower in the City of London because it would produce a lot of embodied carbon but little social benefit. 

Carbon emissions in the built environment received particular attention this year. Buildings account for 40% of global energy consumption and carbon emissions. Large CRE firms around the world announced net-zero targets, began to focus more on embodied carbon in the construction process, and some dipped into the hazy world of carbon offsets. A 53-story multifamily tower proposed in Birmingham, UK, this year could be the world’s first net-zero skyscraper.

Private money (trillions of dollars of it) is lining up to help property owners and builders be more green, including new funds launched this year worth hundreds of millions apiece dedicated to proptech that could help tackle climate issues. Lenders and insurance adjusters are beginning to ask about resilience plans in their due diligence, investors are incorporating climate risks as a factor in their decision-making, and carbon footprints could start to be considered in a building’s valuation. The Federal Emergency Management Agency in October updated the way it evaluates flood insurance premiums for property, stepping away from using static flood plains and instead basing rates on actual flood frequency and characteristics unique to each building. 

The move to work from home could help the climate crisis — if there is less demand for office space, there could be less construction, a major contributor to greenhouse gas emissions and the consumption of materials.

Photo: Unsplash/American Public Power Association

Industrial has had a long run of success, but it somehow reached new heights in 2021, and investors who have never played in the space — even big ones like Tishman Speyer — found they could no longer resist its siren’s call. Pricing for industrial investment sales rose 18.9% year-over-year in October, more than any other asset class. That is pushing some owners (or activist investors) to look to sell. From January to October, $100B had been invested in U.S. industrial assets, and a rise in nontraded REIT activity is contributing to the pressure on pricing. There were giant industrial portfolio sales in 2021, such as EQT Exeter selling its 70.5M SF U.S. industrial portfolio for $6.8B or Blackstone paying Cabot Properties $2.8B for a logistics portfolio totaling 17.4M SF. 

Leasing through October topped 826M SF nationwide, a new record, according to CBRE. Rents were up 10.4% year-over-year at the end of Q3, also a record, and some tenants are seeing rent hikes of 64% on five-year leases. Limited vacancy is causing “panic mode” among investors and tenants to lock down space, Prologis CEO Hamid Moghadam said in October, and it is driving a new model of short-term flexible industrial leases akin to coworking. 

Photo: Wikimedia Commons/Secom Bahia