You may be wondering what to expect from 2022’s CRE market. Here are some of the popular points of discussion around commercial real estate in the new year.
The effects of the pandemic on commercial real estate:
Commercial real estate suffered a huge blow at the beginning of the Covid-19 pandemic. Social distancing measures, mass shutdowns, nonpayment of rent, layoffs and remote work were the main cause. Throughout 2021, investors seized the opportunities of re-openings and lowered interest rates.
Stay-at-home orders created an extended feeling of isolation. This pent up energy made people eager to go out, dine at restaurants, attend concerts and more upon reopening. This situation revealed that businesses lacked the supply to meet increased customer demand. There were major disruptions to supply chains during shutdowns. This may continue to impact the function of retail, hospitality, and even warehouse/distribution. Office, hospitality, and retail sectors have experienced a dramatic drop in revenues since the start of the pandemic. Industrial, data centers, life sciences, housing sector, and e-commerce have reached all-time highs.
The effects of new virus strains such as Delta and Omicron cast doubt on the areas of growth potential in 2022. Many reconsider travel plans which may impact the hospitality sector. Businesses might delay their back-to-office plans. This could have a ripple effect on the labor force in concentrated areas, impacting commercial office real estate.
CRE Markets to Watch in 2022:
Despite current challenges, the commercial real estate outlook for 2022 still seems bright. The National Association of Realtors’ Commercial Real Estate Outlook 2022 report suggests that there is a steady demand for industrial and retail space. Coldwell Banker Richard Ellis Group Inc. (CBRE) report confirms that specific niche real estate sectors have grown during the pandemic. These include cold storage facilities, data centers, and life sciences. With cautious optimism, commercial real estate will continue to grow. Recovery will be uneven at first. Before making any investment, always conduct extensive location and industry research.
Predictions for the Industrial Sector
Logistics real estate has been in high demand for years. A surge in e-commerce created a need for more inventory storage and management facilities. Niches such as cold storage and data centers have also grown and are now at the center of investors’ interest.
Dry warehouse facilities have always been in demand and will continue to increase over time. Despite the greater upfront costs, cold storage revenues are much higher than dry warehouses. The rise of online grocery shopping increased the need for this. Investors in this niche are searching for long-term, reliable tenants.
The movement to perform business online has increased the demand on cloud service and content providers. The rise of cryptocurrency and bitcoin mining developed an unprecedented need for more data centers. These combined factors have created fierce competition to lease warehouse storage facilities.
Predictions for the Multifamily Sector
Many Americans decided to migrate to the suburbs during the pandemic. As a result, the multifamily sector saw a drop in rents and valuations. This situation has primarily affected urban areas. Still, some markets have experienced growth and increased rent during the pandemic. Even during an economic crisis, housing is a primary need.
Since multifamily apartment complexes have the lowest bar to entry, we can expect them to grow. Owning a home may become a luxury that is harder to afford as interest rates rise. Furthermore, there have been many “build-to-rent” projects in 2021 that will continue in 2022. BTRs are projects that build housing units within a community that is under professional management. This type of investment may be suitable for some developers. It is a model like gated communities, featuring premium amenities.
Predictions for the Hospitality Sector
When non-essential travel came to a halt, the hospitality sector saw a dramatic drop in revenues. Still, suburban hotels are likely to recover faster than urban ones. Interstate and suburban hotels have seen decent occupancy levels throughout the pandemic, while the urban ones saw a drastic decline. This suggests that hotels will recover sooner in some areas than others.
According to the CBRE hotel real estate outlook, the occupancy levels may not return to the pre-pandemic levels before 2023. They also suggest that RevPAR (revenue per available room) might only reach its pre-pandemic highs by 2024. This is, in fact, a positive outlook as it could be a solid long-term investment opportunity.
Predictions for the Office Sector
Since the vaccine rollout, employees have begun returning to the office, while some continue working remotely. The future of the coronavirus pandemic and potential for lockdowns is still a grey area. Many say that employers will implement a mixed working model. Those who do return to the office will likely require more personal space. We can expect the densely-populated open-office plan to be a thing of the past.
The demand for more personal space at work may make business owners consider office relocation to larger but cheaper premises in suburban areas. Taking care of your business often means making changes and evolving into what’s best under the given circumstances. As it is now, remote work will likely decrease the need for office space, but we can still expect it to grow over time.
The Bottom Line
The commercial real estate outlook for 2022 is promising. Despite the challenges of the pandemic, it continues to recover. The recovery is uneven depending on property types and geographic markets. However, we have seen increased investment in areas such as self-storage, multifamily complexes, the industrial sector, and data centers due to strong e-commerce and housing demand brought on by remote work. These sectors have been the most profitable for developers so far. Those looking to invest have to keep a close eye on current and future trends.
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Briana Samman creates content for March’s online & print marketing including graphic design, web design, technical writing & editing, social media, and photography/videography.
