Commercial real estate: forecast for 2022
The long months of the pandemic left serious consequences in all areas of the economy. Is there any reason for investors to be optimistic with the end of quarantine measures? How long and dramatic be will the impact of the pandemic in the near future? And won't spreading geopolitical instability hit the economy even more than the virus? Let's consider these questions in relation to one of the most popular investment areas — commercial real estate.
Despite the difficult news background, experts believe in an increase in investment in commercial real estate.
Office rooms
The sector, which is now widely regarded as the most unpredictable.
On the one hand, the ways of working remotely, which everyone was forced to focus on during the pandemic, most likely will not fundamentally change the demand for office space. However, a major change is predicted in tenants' requirements for the configuration of the spaces themselves.
According to a survey conducted by CBRE in 2021, 87% of employers plan to switch to hybrid.
There are predictions that the hybrid model will contribute to the fact that offices will be used to a greater extent for teamwork, general meetings. This will lead to a change in demand for large premises. And the cabinet system is waiting for the decline.
At the same time, some tenants who are not interested in space and special configurations may take the opportunity to move to smaller and higher quality office space.
The office real estate sector, like no other, is divided into older, outdated, inefficient objects that do not meet changing needs, and new ones with a more modern design, diverse functionality, and amenities.
Therefore, in a changing world, the demand for objects that do not take into account new requests and are not adapted for rapid changes will naturally fall. Conversely, modern types of real estate will benefit.
Commercial real estate
The retail real estate industry in many developed countries, such as the United States, has been overwhelmed for many years. The pressure of online shopping, which began long before the pandemic, will only intensify.
According to the US Census Bureau, e-commerce accounted for 13% of total retail sales at the end of the third quarter of 2021, compared to the start of the pandemic.
As the pandemic recedes, consumers will return to buying experiences, not things. The decline in in-store retailing, especially in Class B and C malls, will continue.
Experts agree that we will always need physical stores, including malls. But just not so many.
Apartment buildings
In 2021, the multi-family housing market performed outstandingly as capital flooded into the sector, offering owners such prices that it was simply impossible to refuse to sell.
Unlike retail, where supply far exceeds demand, the supply of all types of housing in the US remains limited. Marcus & Millichap reports that the number of vacant apartment buildings in the US is 2.6%.
According to the recent IRR Viewpoint 2022 report, the country continues to experience systematic housing underproduction. Demand for apartments is fueled by high housing prices.
What could stifle demand for apartment buildings is the growing inaccessibility of rental apartments. This could lead to household consolidation and sending Gen Zers and young millennials back to their parents' homes (a common practice during the first year of a pandemic).
Another hurdle for apartment buildings is the growing supply and demand for single-family rentals. Priced between apartments and purchased homes, renting a house provides more space for families, typically with a garage and yard, which is particularly well-suited for working from home.
The problem is that the rents for these houses are skyrocketing as well as the land they sit on. Thus, while new "horizontal rental communities" are being built to meet demand, developers are vying for land with traditional home builders, exacerbating the affordability crisis.
Hotel business
The recovery of the hospitality industry, according to experts, will come only in 2024.
The return of business travels and major conference travels has begun and will pick up momentum if COVID options stop popping up.
The biggest problem the sector is currently facing is the shortage of labor and the need to pay higher wages. According to the Bureau of Labor Statistics, the hospitality industry has seen the highest wage growth of any industry, up nearly 20% since 2019.
Capital is available for the sector not only because of the expected recovery, but also because hotel owners can benefit the most from inflation.