Newmark Releases Index Comparing CRE Opportunities & Challenges Across 22 U.S. Markets

Newmark's Opportunity Index examines and ranks 22 of the United States’ largest metro markets across economic and property-specific metrics.

NEW YORK: Newmark has released the “Newmark Opportunity Index,” a detailed report that examines and ranks 22 of the United States’ largest metro markets across economic and property-specific metrics. As the country continues its pandemic recovery, the index points to the opportunities and challenges associated with each individual major metro area, gauging its overall economy as well as its comparative ranking for investment potential in office, industrial, multifamily, hospitality and retail property. 

In addition to various market by market specifics, the index also highlights a variety of nationwide trends that transcend geographic boundaries. Largely a result of the growth of e-commerce and the shutdown of brick-and-mortar retail, the industrial market fared better than any other sector during the pandemic, with demand and rents for industrial space on the rise, and an uptick in industrial sales volume. While these trends were seen broadly across U.S. metros, top industrial markets, including Boston, Atlanta, Philadelphia, Tampa and Dallas, were more pronounced.

Conversely, office markets across the country were challenged as a result of the increase in remote work during the pandemic and the uncertain timeline for some tenants’ return to the office. Nationally, office vacancy rates climbed from 13.0% in Q1 2020 to 15.8% a year later, resulting in many asset owners offering substantial concessions, thereby reducing effective rents. Overall, the top ranked markets for office investment include Tampa, Miami, Dallas, Minneapolis & Philadelphia.

“While it’s tempting to look at research like the index and designate certain markets as winners and losers, it’s important not to lose sight of the fact that each and every metro area and asset class presents its own opportunities,” said Sandy Paul, Newmark Senior Managing Director of National Research. “For example, while Dallas received the second strongest overall rating, the opportunities it presents in multifamily and hospitality are quite different. Similarly, while many gateway markets were hit hardest by the pandemic because of their population density, they still tend to feature growth industries like the technology sector and the most educated workforces, which should support their steady recovery and create new opportunities for investors.”

While multifamily occupancy and rents ticked down over the past 12 months, the multifamily asset class is rebounding and offers significant investment potential in many markets, an opportunity which is underscored by the high prices of single-family homes. Blake Okland, Newmark Vice Chairman, Head of Multifamily Investment Sales noted, “Multifamily market indicators are particularly strong across the Sunbelt with top-ranked markets in this asset class inclusive of Dallas, St. Louis, Phoenix, Atlanta and Denver.”

An early victim of the pandemic, the hospitality sector is now well into its recovery, with hotel occupancies having reached 54.6% by March 2021, a full 1,600 basis points above the early-pandemic trough. “Markets that have significant leisure demand generators are seeing RevPAR levels at or beyond pre-pandemic levels,” added Adam Etra, Newmark Vice Chairman, Co-Head of Lodging.

A sector facing downward pressure even before the pandemic, retail was hit particularly hard by local lockdowns in many markets. With e-commerce transactions as a percentage of overall retail purchases jumping from below 10 percent to 14 percent in less than three years, many brick-and-mortar retail properties have struggled. Still, retail was much like other sectors in its geographic diversity, as metros that implemented fewer pandemic-related restrictions on gatherings tended to outperform larger markets. Top-ranked retail markets include Nashville, Houston, Tampa, Orlando and Dallas.

“While some of the macro challenges facing the CRE space — the speed at which workers return to the office, consumers’ increased proclivity for e-commerce — are seen across the country, many other key issues and opportunities are unique to specific markets,” concluded Jimmy Hinton, Newmark Executive Vice President, Head of Investor Strategies. “With the vaccination rate increasing and people returning to a more normalized life, the economy is rapidly gaining momentum, and a deep understanding of market fundamentals can help investors make more informed decisions about where to allocate their capital.”