Los Angeles, December 8, 2021 – The U.S. commercial real estate (CRE) market has rebounded in 2021, fueled by historically low interest rates, concerns over inflation and potential tax changes, and an expectation by many investors that the market is adjusting and learning how to navigate the uncertainties of an ongoing COVID-19 pandemic. In fact, transaction volume and capital invested increased significantly in 2021, reaching levels not seen since 2005. The CRE recovery has been challenged by labor constraints that, when combined with record demand, triggered longer project delivery times and placed inflationary pressures on project costs for the better part of 2021. In the face of these challenges and another year of high volume expected in 2022, CRE service providers are working urgently to scale up.
Joseph Derhake, founder and CEO of Los Angeles-headquartered Partner Engineering and Science, Inc. (Partner) says, “The commercial real estate market experienced an incredible moment of growth in 2021 and Partner strategically and exponentially scaled its business to accommodate our clients’ needs. The transaction surge required us to pivot by hiring and training 600 professionals since the depths of the COVID recession. We anticipate another hiring surge next year since record levels of transaction activity are forecast to extend into 2022. There is a lot of dry powder out there that will fuel activity, and we are well positioned to handle it.”
Investors are allocating record amounts of capital into commercial real estate and using it as a hedge against rising inflation. Concerns about regulatory changes, such as the potential loss of 1031 exchanges and potential increases in capital gains taxes, are pushing investors to act before changes are enacted. These behaviors drive transaction volume and add urgency to project closings.
That surge in activity is reflected in Partner’s growth in 2021. Partner experienced a 65% increase in project assignment volume nationally in the first three quarters of 2021 compared to the same period in 2019 due to the increased CRE transactional activity. Partner has responded by increasing its global team to more than 1,250 employees, a 34% increase in staff compared to the firm’s pre-COVID headcount and an all-time high. The firm also plans to grow its staff by more than 500 people next year to keep pace with soaring demand for due diligence services.
Integra Realty Resources’ Chief Executive Officer, Anthony M. Graziano notes, “Most market research, appraisal and consulting firms have been operating at capacity since August of 2020. We’re all working to scale up but there is a systemic shortage of experienced commercial appraisers because not enough people entered in the field in the past 5 years. As a result, Integra’s service level standard of three weeks has been pushed in many markets past a five-week delivery for most of 2021. While there’s been some easing of pressure on the volume levels recently, roughly 75% of our offices are expecting extended turnaround times to continue into the next two to three quarters. Given continued demand on third-party providers, we’re urging our clients to plan ahead, leave more time for due diligence, and be understanding of the pressures all the service providers are under.’”
Numerous CRE industry experts have reported on current market conditions. Real Capital Analytics (RCA) reported the surge in activity that started late last year. During the summer of 2021, the average number of deals per week surpassed 200, which exceeded the pace of deal making in 2019 and is more than twice the level of 2020. CBRE’s Third Quarter 2021 U.S. Lending report also showed a surge in property acquisitions and lending activity that is expected to continue in 2022.
This historic market and record activity translates into increased demand for CRE services like due diligence, valuations, title services and numerous others that support transactions, investment, and financing. As a result of those inflationary pressures on third-party vendors supporting CRE transactions, service firms are rethinking business approaches and finding innovative ways to deal with rising demand, while adjusting to supply constraints and tight labor markets.
Graziano indicates Integra’s approach is to continue to streamline and automate processes while training more researchers and para-professionals. He says, “I can’t properly train a commercial appraiser in under 18 months, so to meet current demand, we need to recognize our experienced commercial appraisers are like surgeons: I don’t want them spending time getting the operating room organized.”
To close the gap between supply and demand, firms worked to address the lack of labor, while solving and finding efficiencies, often in the form of technology investments. “We’ve more than doubled our team of in-house software developers in the last year,” said Derhake. “Every efficiency helps in the fast-paced CRE world and technology is helping us shave off minutes and hours of administrative work for each project, allowing our professionals to focus on what matters. We continue to work to be positioned to handle the continued high volume of activity expected through the end of 2021 and into 2022.”
Partner offers full-service engineering, environmental and energy consulting and design services throughout the Americas, Europe, and around the globe. Our multidisciplinary approach allows us to serve clients at all stages from initial due diligence and design to development and construction, as well as the ongoing maintenance and optimization of a real estate asset.
Partner’s growth over the last 12 months has encompassed the following:
Integra Realty Researchers is one of North America’s largest valuation and consulting organizations in the U.S. and Caribbean with over 600 professionals dedicated to providing best-in-class commercial real estate research, valuations and market studies. The firm services 58 primary and secondary metro areas providing services to some of the nation’s largest corporate, financial services, and government clients.