Investing Trends in Commercial Real Estate for 2022August, 19 2022
February 17, 2022|From the Desk of Joe Berko
Written by: Joe Berko | CEO & Co-Founder Astor Realty Capital
February 14th, 2022
Commercial real estate (CRE) is regarded as one of the most reliable performers in regard to stability consistency and a profitable market. However, the pandemic has brought on a slew of challenges resulting in volatility in the commercial real estate market. From rising interest rates, rapid changes in technology, supply chain disruptions, firms were facing the option of responding quickly to a fast-moving real estate industry by optimizing internal processes and introducing property technology. However, in a metamorphosis market full of new opportunities and challenges commercial real estate industry is experiencing a comeback and is finding its way back to success in 2022.
Retail Continues to Change
The retail sector is the only commercial real estate that has seen the most changes. However, this sector has proven to adapt to changing consumer behavior and is recovering quickly.
Customers no longer want to go inside to browse; they prefer to shop with businesses that give the option of on-site or curbside pickup. Resulting in retail spaces having to feature extra inventory organizational areas and having the capacity for pickup transactions. In addition, increases in e-commerce have pushed developers to repurpose retail malls that were side-lined.
Much like retail, malls are also seeing a reduction in customers. Investors are currently transacting not to hold but for repurposing.
Multifamily Demand Rising
There is rising demand for multifamily commercial real estate such as apartment complexes is rising in 2022, and Multifamily investors are to see a substantial rise in demand in response to increases in rent. According to data from CoreLogic Miami has seen the fastest rising rents of any U.S. city over the past year Redfin reported that Rents in New York and South Florida metros also surged more than 30%; with the rise nationwide, average monthly rents rose by 13 percent since last year. The majority of the surges in price were recorded in popular metro areas.
This is partly due to young renters who moved to the suburbs during the pandemic are now back and seeking new rentals. As they can now live independently due to their ability to mobilize their finances since there are now more job opportunities. In an economic crisis, tenants will prioritize their rental payments as housing is a primary need. Since multifamily complexes are obstacles or hindrances in the market, they are growing. Depending on the market, rent is projected to grow up to 10% in 2022.
While urban multifamily popularity declined early in the pandemic, it’s now experiencing a resurgence in popularity. As a result, companies are gradually returning to the office, driving some workers right back to central business districts. CBRE 2022 US real estate market outlook report for multifamily projected growth in investment of $ 234 billion for the year.
Industrial Sector Remains Popular
Again, e-commerce has increased the popularity of industrial properties warehouses, and distribution centers. There will be the need to store a larger volume of products to facilitate faster shipping. In addition, customers want to save on time browsing or shipping costs, so they now prefer shopping with businesses that have an option for curbside or on-site delivery.
Ecommerce has become a significant driver for the increase in demand for warehouse space hence driving up prices and a record low in vacancies.
A surge in e-commerce created a need for more inventory storage and management facilities. As a result, niches such as cold storage and data centers have grown and are now at the center of investors’ interest.
High Industrial demand is also a result of the most significant contributor third-party logistics providers and leasing among e-commerce. However, retailers are also increasingly in the mix, trying to save money and gain more control over their supply chains by purchasing warehouses.
Office buildings are a solid venture for commercial real estate investors as investing in an office building is a guaranteed steady flow of income. Unfortunately, the once-anticipated mass return- to-office never materialized in the fall of 2021 as the new variants pose challenges to plans to return to the office, affecting employees who were already hesitant. Companies have become uncertain and must now choose between the hybrid or office model. They must determine if they will need the same space; as a result, commercial real estate leases have become shorter. These delays may result in the office not returning to pre-pandemic normal. however, regardless of this, this property type is relatively solid and has a healthy level of momentum. “Trophy offices” are now in demand as businesses attempt to entice employees with amenity-rich, modern, attractive buildings.
Hospitality on the Rebound
As there is a boom in business travel, it has caught up to leisure travel in 2022. With this increase in business and leisure travel, hospitality luxury hotels have undertaken significant renovation projects. As a result, projects on the drawing boards are now moving ahead in the construction process. this will see a bounce back from city centers and interest from hotel brands in incorporating mixed-use components into their projects.
Investor enthusiasm for hotels catering to leisure travelers has contributed to a rebound in hotel transaction activities. This is highlighting the broad-based interest hotels have seen among investors as evidenced by individual asset sales as opposed to portfolio megadeals.
Mixed-use Zoning on the Rise
Mixed-use zoning is quickly becoming one of the most significant asset classes in 2022. This trend is seeing parking becoming last-mile distribution centers and self-storage; hotels are becoming housing, offices evolving into mixed-use, and retail changing into working/living environments. The repurposing and repositioning of these existing assets will add immense value to investments for the next several years.
A Rise in Demand for Technology
Companies have continued demand for technology infrastructure needed to enable hybrid work environments. This is particularly true for the office market and will apply to asset classes such as self-storage and data centers. In addition, leveraging technology will allow them to reduce operating costs.
Investor Sales Transactions
The pandemic upturned the commercial real estate industry and interrupted most retail demand and leasing activities. However, the industry has managed to survive this, which help to strengthen investor confidence leading to an increase in industry transactions to 17%.
While commercial real estate sales transactions were down, hotels were experiencing increased transaction volume. However, entertainment and tourism were still below target; this indicates that investors purchase these hotels intending to convert them into a different asset class such as multifamily or industrial.
Investors making Faster Decisions
The proptech revolution has led to a shift in how investors require deal and data visibility to make faster accurate decisions. Investors now have access to standardized data, which allows them to extract information on strategic insights more quickly as opposed to the traditional methods
For commercial real estate investors, it is important to recognize these trends and use them to guide their investment decisions. At Astor Realty Capital our goal is to fill the equity gap by infusing competitive capital in amounts lower than the traditional institutional size participation and providing attractive risk / return alternative investments to our investors.
Investing in real estate is an ideal way to build and diversify your portfolio. It is also an excellent source of passive income. The goal of investing in real estate is to put your money to work today to have more money in the future.
Remember, you work hard for your money; It’s time to let your money work just as hard for you.