7 Things to Know About CRE in 2022January 22, 2022
We are quickly approaching the two year anniversary of when we were asked to stay home for two weeks to slow the spread of Covid-19 and we can’t say we’re out of the woods on this virus. That said, commercial real estate professionals are always looking for the next report to help guide the way for their present and future real estate decisions. I recently read a report that we (Lee & Associates) recently published and I thought my audience would be interested in hearing about it. The report was titled, “Seven Things to Know About CRE in 2022.” Here is a summary and at the end of the post you can follow the link to read the entire article if you like. Below are the 7 things to know…
The Industrial Sector, Industrial REITS, and Data Centers will continue to grow in 2022.
The pandemic has actually helped all of e-commerce and as a result, it has really lifted the industrial and logistics real estate sector. Currently, e-commerce sales will make up 14.5% of total retail sales and it is expected to grow to 18.1% by 2024. In addition, all the technology that has become prevalent over the past couple years, like video conferencing, has increased the demand for data centers, cell towers, and logistics facilities.
The office sector is not dead. It will remain the hub of business, but hybrid schedules that allow for flexible work-from-home opportunities are here to stay.
According to the Labor Department, millions of employees are returning to work every month but employers are embracing a flexible work-from-home schedule. Most employees have embraced their work-from-home schedule and they are starting to require it from their employers. To gauge the effect of this trend and how it will impact the amount of space that companies take, watch for the peak space needs when employees are required to be in the office. We are still watching to see how and if employers redesign their offices to account for this trend.
Expect another strong year for the multifamily and housing sector.
We expect rents and home prices to remain high this year as demand for both multifamily and housing is strong. The pandemic has had a positive impact on this sector.
Demographic shifts will accelerate the demand for senior living facilities and elder care services.
Covid had a negative impact on this sector but we have seeing it coming back, especially the second half of 2021. A full recovery is likely going to happen in 2023 but expect to see 2022 continue the trend from last year.
Expect another banner year for the self-storage sector.
With home sales high throughout the pandemic, the demand for self-storage remains high. Through the entire pandemic, the U.S. self-storage REITS outperformed all other property sectors.
Even though inflation will be high for the first half of the year, expect it to gradually decrease as the year progresses. The U.S. is not currently going through a 70’s style stagflation.
We know that the Fed is planning on raising short-term interest rates in 2022. We expect long-term interest rates to remain low which should keep the financing conditions attractive through 2022. We have noticed that there has been large swings in inflation during the pandemic but our economists are not expecting inflation to remain high.
Expect reductions in retail vacancies as tenants continue to lease Brick-and-Mortar retail property.
The pandemic has been hard on retail with all the masking and social distancing but as those requirements start to relax we have seen in-store sales increase as consumers still prefer to shop in brick-and-mortar stores for items where size, fit, and appearance are essential. By the third quarter of 2021, we saw brick-and-mortar sales come back with an $82 billion gain over the decline in 2020. It is worth noting that with this increase, e-commerce sales haven’t been impacted as they’ve continued to grow as well.
If you are interested in reading the entire report, you can find it here for download.