At the start of the Covid-19 pandemic, commercial real estate suffered a significant hit. The main causes were social distancing measures, widespread shutdowns, nonpayment of rent, layoffs, and remote work. Throughout the year 2021, investors took advantage of re-openings and decreased interest rates.
Keep an eye on these trends and opportunities as we navigate the commercial real estate asset classes in 2022.
- The hybrid work revolution will keep multifamily and residential demand and activity high
Household formation, which had been artificially restrained by the pandemic is gaining traction as the economy grows. Demand for rentals is known to match the rate of new deliveries in 2022 as a result of the flood of new households. We expect multifamily occupancy to remain over 95% for the foreseeable future, with net effective rents increasing by roughly 7% next year.
The growing interest in multifamily assets has ignited a surge in investment. According to CBRE, apartment sales exceeded $213 billion in 2021, which is 10% higher than sales in 2019 before the pandemic. Apartment investment sales are expected to increase by 10% to $234 billion in 2022, according to the brokerage firm.
Multifamily assets can help investors reduce the wealth loss caused by inflation, in addition to the strong demand for housing with 1.05 million apartment units absorbed between Q2 2020 and Q4 2021.
According to the most recent data, the average apartment rental rate in October was 7.5% more than the yearly increase in consumer prices reported that month and strong tenant demand has pushed multifamily vacancy rates down to 4.6 percent in the United States. [Yardi Matrix].
- Low-Interest Rates and Mortgages
Investors who took the chance in 2021 reap the benefits of the lowest interest rates recorded in decades. This change seems to be stagnant even for the foreseeable 2022 future.
Low-interest rates provide investors with more purchasing power, allowing them to make affordable transactions that would be challenging to make if interest rates were higher.
Low-interest rates greatly help those involved in commercial real estate deals. Commercial loans have always operated differently than household loans which have lower interest rates. If the base rate is significantly lower than usual, even a commercial loan that the lender regards to be higher risk will be offered at a lower rate than usual hence, investors can afford to take out an investment loan.
- Warehouse construction and logistic real estate investment will continue to benefit from e-commerce growth
Demand for cloud services and content providers has surged as more people conduct business online. With the rise of cryptocurrency and bitcoin mining, there has never been a greater demand for data centers. The combination of these variables has resulted in severe competition for warehouse storage space.
The rise of e-commerce requires the construction of additional inventory storage and management facilities. Cold storage and data centers, for example, have expanded in popularity and are now attracting the attention of investors.
Dry warehouses have always been in high demand and will continue to be so in the future. Despite the higher initial expenses, cold storage generates significantly more revenue than dry warehouses. The growing popularity of online grocery shopping has raised the demand for this service. Long-term, dependable tenants are sought by investors in this market.
- Remote Work Offers New Home Options
As investors tend to prefer remote workplaces, the future of offices is very uncertain. Even tech leaders are leasing office space in major U.S. cities, although many had dedicated to 100% remote work.
Buyers are now shopping for homes in nearby areas near major cities. They’re even willing to commute into the city if the cost of living in the suburbs drops. Buyers desire more space for their home offices and a work-life balance as more people change to a hybrid work style.
Suburban submarkets with lower prices responded exceptionally well in 2020, and they’re expected to outperform the market as a whole in the following years as buyers look for more space.
What to expect…
Single-family housing prices are expected to remain high with limited supply as more individuals move to the suburbs to buy a home. Meanwhile, demand for homes will continue to be fueled by low mortgage rates.
Meanwhile, the rental property market in major cities will continue to decrease, creating chances for real estate investors anticipating a post-pandemic resurgence of city life.
A rise in mortgage rates and an increase in house supply as development catches up with demand are both signs of their reversal.