2022 might be a record year for commercial real estate investment, enabled by high levels of low-cost debt availability and new players drawn to real estate debt’s attractive risk-adjusted returns.
Although the pandemic has negatively affected many aspects of the economy greatly, some sectors are flourishing.
Here are five predictions for commercial real estate in the new year:
1. Despite the ongoing COVID threat, commercial real estate will recover
According to CBRE, the outlook for the economy and commercial real estate in 2022 is positive, despite uncertainty over potential impacts of the COVID omicron variant and other risks.
While the new variant will impact the timing of a large-scale return to the office, fiscal and monetary policy remains highly supportive of economic growth.
Monetary policy will tighten to keep longer-term inflation pressures in check, which may trigger some short-run volatility in the stock market, but it will not be enough to dampen investor demand for real estate.
Commercial real estate values will rise, particularly for sought-after industrial and multifamily assets. Investors will sharpen their focus on emerging opportunities in the office and retail sectors in search of better returns.
The supply/demand balance in the office sector will remain highly favorable for occupiers, but the pace of recovery will pick up following a slow 2021. With hybrid work being the new normal, office properties with amenities that enhance employee collaboration, connection and wellness will fare best.
2. 2022 will be the year of re-learning
2021 was a year of “wait and see” for the return to the office. Organizations were not willing to give up their prime real estate, yet they also were not ready to move back into the office as the business world waited out the pandemic sequel.
In 2022, organizations might put their long-awaited plans into action while they will also learn, and re-learn, along the way. One of the biggest realizations for organizations coming out of the pandemic was that they can no longer rely on previous office data and trends to make decisions.
Instead, they must lean into technologies like space reservation tools, IoT sensors and network traffic markers to make decisions based on real-time data.
This will give a true measure of an organization’s return to work plans by determining who is actually coming in and when, and how they are interacting with others in the space, according to Tango, a provider of cloud-based store lifecycle management and integrated workplace management software.
This will put organizations in the best position to make smart decisions moving forward, whether they reconfigure existing space, or change it out for a smaller space; the goal is to ensure they have the most optimized space for their business.
3. Industrial real estate will continue to stay hot
Demand for warehouse space all along the logistics pipeline drove prices to record heights and vacancies to record lows throughout 2021.
E-commerce is a major driver of this. At one point in 2021, Amazon accounted for nine of the 10 largest warehouse construction projects in the country.
Retailers of all sizes, like Walmart, Kroger, and even craftspeople on Etsy are driving the growth of distribution facilities. Manufacturers will also be requiring more space as they look to start keeping more parts in stock on-site or nearby.
4. The outlook for office real estate will remain rocky
Rent growth for office space nationwide will most likely be slightly negative in 2022. The continued prominence of working from home combined with the effects of the Great Resignation will dampen demand in 2022 for office spaces.
While some companies have started bringing people back into the office, the list of those who haven’t is quite long and probably won’t change for some time, given the continued uncertainty of COVID-19 and the effect of its variants.
Unfortunately, a report from PwC and ULI says that almost two-thirds of real estate professionals believe that fewer than 75% of workers will work in person at least three days per week in 2022, and that office space utilization will likely decrease between 5% and 15% through 2024.
5. The housing market will continue to be strong
Demand for residential real estate has only gone up in the last few years, especially during the pandemic.
In 2022, limits to new construction will keep both rents and home prices strong.
According to Forbes, the markets for apartment rentals and for home purchases usually move in opposite directions, with a strong housing market generally accompanied by soft rental markets, and vice versa.
During the pandemic, however, the desire for more living space while people are working and studying from home has driven both rental and ownership markets to record highs.
Source: Allwork Space