2022 Commercial Real Estate Trends: What’s Hot, What’s Not, and What to Watch
Sometimes it seems as if crystal ball predictions are as much a Q1 tradition as an end-of-year seasonal cheer.
While it’s true that writing an outlook on the year ahead has become part of the ritual for many companies, such outlooks are, in fact, valuable. It is especially true if said previews are based in reality and not on the wish lists of what executives would like to see.
At The Robert Weiler Company, a full-service commercial real estate brokerage and appraisal firm since 1938, we’ve seen a lot of trends come, and a lot of trends go. And after nearly 85 years, some of those CRE trends have come back around again, reaffirming the adage that everything old really is new again.
The following information – a 2022 predictive preview of the upcoming real estate season – breaks down each commercial property subsector, identifying what trends investors should be on the lookout for and why.
To a large extent, the trends that defined the industrial real estate landscape in 2021 will continue in 2022. For starters, warehouse space will remain in huge demand. That’s because the US and the world will continue to make the transition to an even more virtual economy. The virtual economy speaks to the “metaverse,” or a network of 3D virtual worlds where virtual goods are being bought and sold.
In addition, the industrial economy will be buttressed by a desire to “safety stock” goods. The idea is a bit of a reversal to what had become a standard operating practice for many manufacturers — having supply match demand will little room (or desire) for surplus. But if the pandemic has taught us anything, a slight surplus is a good thing, anticipating future supply chain disruptions for whatever the cause. Warehouse owners will benefit as businesses look to stockpile their rainy day surplus closer to home.
Perhaps the brightest star to come out of the retail sector were grocery stores, another unique pandemic plus. Once again, e-commerce took center stage as consumers shopped their favorite supermarkets online. In fact, with robust growth expected at over 20% this year and doubling by 2025, now might be an excellent time to invest in this space.
Speaking of space, grocer success wasn’t about the online experience. Brick-and-mortar benefitted too, as store managers made more efficient use of their shelving space to attract, retain and, yes, engage food-buying customers. Not to be outdone, smaller drive-through operations like banks, pharmacies, convenience stores, and fast-food chains all enjoyed steady growth from 2021 and are likely to continue in 2022. Even assuming the worst of COVID-19 is over (and that no new variants disrupt global economies), these improved consumer conveniences are unlikely to lose the ground they’ve already gained.
Of all the commercial real estate subsectors, office space for rent, lease, and sale will continue to struggle as vacancy rates remain high, especially in some of the cities hardest hit early in the pandemic. Moreover, remote work has become the new normal. And according to numerous surveys, many employees indicate that they have adapted to the flexibility that work-life balance provides. Thus, 2022 will remain a buyer’s market for office space as lower rental rates will persist.
But in other markets, the new normal is fast becoming the “next normal.” The next phase will entail more variable work hours and a hybrid approach to at-home and brick-and-mortar office time.
If office space vacancy and commercial rental rates remain this list’s greatest challenge, multifamily dwellings are poised for some of their most substantial growth. The numbers tell much of the story:
- Occupancy rates are predicted above 95%
- 300,00 new units are expected to come online in 2022
- An 8% growth rate is projected in urban rents
Much of this positive trend, like others, is a hopeful consequence of COVID-19 evolving from its pandemic to endemic phase, where life is returning to normal.
As downtowns recover and colleges/universities and businesses reopen, studies predict that a 2022 multifamily dwelling will enjoy at least a 10% increase from 2021. Suburbs will grow as maturing millennials and their young families seek more outdoor space and competitive public and private schools. Interestingly, investors are finding robust inland markets more appealing than ever. This observation bodes well for medium-sized cities like Columbus, Ohio.
Data Centers and Digital Real Estate
Throughout the pandemic, it has been the digital economy that has kept millions of businesses afloat. While remote work and virtual conferencing had already been well-established technologies, there is no question that the last two years have been the most potent catalyst for growth the industry could have ever envisioned. Thus, data centers, infrastructure/cell towers, and industrial/logistics facilities will remain in high demand.
One way to measure the industry’s growth is electrical power usage. Power usage for data centers has more than doubled to 3.08 gigawatts in primary markets since 2016. Once again, these increases are forecast to continue — so much so that smaller markets stand to benefit as new data centers open away from traditional hubs. With energy demands in these markets growing, there will likely be further investments in renewable and off-grid power sources.
Perhaps the most significant difference for the hospitality sector from late 2020 and 2021 compared to today is easing inbound international travel restrictions. While the hospitality sector was among the hardest hit at the pandemic’s beginning, the industry continues to rebound. Likewise, as the global vaccine rollout gains momentum and immunity from natural infection continues, business travel will start to claw its way back to pre-pandemic normal.
This is by no means a guarantee. And many struggling hotel brands are likely to continue service, capacity, and amenity restrictions as a cost-saving measure. Hotels that generate positive cash flows will be better able to put that money to good use once the pandemic is truly behind us. Last, all-inclusive destinations and resorts will likely perform best as prices tend to be more stable and their leisure model is conducive to a controlled, low-stress (insular) environment.
As evidenced from above and the first two months, 2022 is already shaping into an exciting year. Across a variety of commercial real estate sectors — industrial, retail, office, multifamily/apartment, digital real estate/data centers, and hospitality — novel investment and innovative use trends are coming into focus. But with lingering concern over the rising cost of goods, stubborn supply chain bottlenecks ongoing, and the uncertainty over new COVID-19 variants, a company’s risks are becoming cloudy.
Consider the previous sentence our qualifying remarks that anything is possible in the 10 months ahead, despite sector-wide optimism.
At The Robert Weiler Company, the foundation of our success is built upon trust. The expertise of our commercial real estate professionals is what holds that foundation together. In the months ahead, our team will continue working to ensure that our crystal ball predictions for the 2022 commercial real estate trends are as precise as can be. If you’re selling or buying commercial property or need to secure our commercial real estate appraisal or property management services, call us at 614-221-4286.