So far, 2022 has been shaping up to be a bit of a tougher year in the residential real estate market than past years. The average 30-year fixed mortgage rates for residential properties went back up to levels that hadn’t been seen in almost 12 to 13 years. While there were some ups and downs, mortgage rates had, for the most part, been on a slow and steady decline since the early 1980’s when the 30-year fixed rate mortgage average in the United States was over 17%, yikes! Luckily, there’s a good chance that mortgage rates will never be that high again, but when the mortgage rate moves from about 2.5% to over 5.5% in a year’s time, it can be hard to ignore. It’s also important to keep in mind that the average mortgage rates since 2019 have been the lowest they have ever been, so anything over the lowest rates ever is going to seem high.
Commercial real estate sales, on the other hand, have had a very strong year in sales across Los Angeles and the United States. This is because commercial real estate is different fundamentally. Additionally, commercial real estate loans are not the same as residential loans. Some of the commercial real estate loans come from banks and lenders, but they also come from government agencies such as the 504 loans from Small Business Administration (SBA). In some cases, depending on the position of the investor, they may or may not use a loan all together, such as in the case of a hard money loan. If you are in the market for a commercial property, here are some market stats that you will want to know in 2022.
Commercial Real Estate Statistics in Los Angeles
While the residential markets have cooled a bit recently, commercial real estate seemed to be in a league of its own in Los Angeles during the first two quarters of this year. Commercial real estate sales increased by 226% in Q1 and 128% in Q2, which is quite remarkable in and of itself. That growth trend is yet to be determined if it continues on the trajectory at the time this research for this article concluded. While the research seems to indicate this will likely not be the case, there is still a little time left in August and the full month of September left in Q3 2022 to close the $28,000,000 break-even gap.
Overall, commercial real estate has continued to sell, with some commercial property types doing better than others. In 2021, the total commercial real estate sales in Los Angeles topped $106,000,000 in sales, just $6,000,000 under asking. As of the beginning of Q3 2021, the total commercial real estate sales were at $98,000,000 in Los Angeles, with about $5,000,000 under asking. So far, 2022 commercial real estate sales in Los Angeles are trending at a higher rate than the previous year, and based on the historical information, could be forecasted even higher than 2021. It is important to point out that correlation does not equal causation, and past performance is no guarantee of future performance. At this point, all commercial real estate in Los Angeles would have to halt immediately and take a holiday to not eclipse last year’s total aggregated sales. Although this is not impossible, it is not likely, considering that the average number of commercial sales per month in Los Angeles is around 6 per month with an average closing price of $1.5 million per transaction.
Additionally, almost every category of commercial real estate in Los Angeles is already seeing a year-over-year (Y/Y) increase from 2021 to 2022. For example, retail commercial property sales have almost tripled, warehouse sales are already seeing a 4-fold increase, and other categories such as industrial properties, commercial offices, and specialty properties are posting modest gains year over year in Los Angeles. This is quite impressive with 4 months left in 2022, which means there’s still a ways to go. There are a few exceptions, such as business properties, mixed use, multi-family, and unimproved land that have total aggregated sales below last year. It is still important, however, to remember that there is plenty of time for most of those other lagging commercial real estate categories to catch up.
Commercial Real Estate in the US
It is not an anomaly that commercial real estate sales have been climbing in Los Angeles, considering the overarching trend across the US is also up. According to an IBIS World study, total commercial real estate sales amounted to $1.1 trillion in 2021, which as of late August 2022 is already at $1.2 trillion. This study also estimates that total commercial real estate sales in the US will grow by at least 2.8%. At this pace, commercial real estate sales in the US are on track to finish the year in the top 3 total commercial real estate sales of all time.
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If you are looking to buy, sell, or invest in commercial properties in Los Angeles, California, or across the US, then get in contact with Stephen White today!