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2022 Outlook Part 1: Expect Another Strong Year

The CBC team recently released its outlook on 2022 commercial real estate trends, which you can access the report here. The outlook provides insight that is backed by research and analytics, and explores a wide variety of real estate trends including, confidence in the property market, the increase in transaction volume, job growth and demand for commercial real estate space in secondary markets. The report notes that investors are capitalizing on rising rents and demand for space, points out what cap rates are in popular Sun Belt and secondary markets, highlights the build-to-rent trend for multifamily, observations of retail and industrial markets, the future of office demand, self-storage, and demand for medical space. After conducting extensive research, the CBC team confidently predicts that 2022 will be another strong year fueled by stable cash flows and pent-up demand.   

In part 1 of CBC’s 2022 Outlook blog series, we take a closer look into confidence in the property market and how that helped to push commercial property values to a 15-year high in the third quarter, the increase in transaction volume in 2021, annual CRE sales volume, by property type, strong fundamentals, job change by market, core trends, and cap rate changes in 2021.

Market Confidence & Transaction Volume in 2021

While rents were pressured early in the COVID-19 pandemic as tenants returned space to the market and delayed new leases, the economy came roaring back in 2021 with 18.5M jobs (out of 22.4M lost during the pandemic according to the Bureau of Labor Statistics) — contributing to confidence in the property market and helping to push commercial property values to a 15-year high in the third quarter. 2021 transaction volumes rose 55% over 2020 and were 15% above 2019, led by multifamily, life-science, warehouse and distribution properties.

Fundamentals are Strong:

Corporate relocations, local business expansions and an influx of new residents have fueled job growth and demand for commercial real estate space in secondary markets. Investable funds are piling up and waiting to be deployed, though investors find it challenging to identify product to acquire.

For 2022, CBC expects CRE activity to continue at a healthy clip, as investors capitalize on rising rents and demand for space. While deal flow for Class A office properties is starting to pick up in major metros (Seattle, D.C., Los Angeles, San Francisco, New York), focus on smaller markets experiencing population and employment growth will continue to be front and center. The key challenge that buyers will face this year is deciding if there is enough rent growth to justify extremely low cap rates. For sellers the question is, what to do with the money if they sell now?

Core Trends

Cap rates in popular Sun Belt and secondary markets have come down to the 2% to 4% level, creating some of the tightest spreads between coastal and non-coastal markets for popular industrial and multifamily properties.

Investors who rarely ventured outside of their preferred geographies pre-pandemic are now looking at properties across the country and considering all of it “fair game.” For example, West Coast developers are looking to cross into markets like Montana, Boise, Las Vegas and Arizona.

In part 2 of CBC’s 2022 Outlook blog series, we will discuss where investors are building industrial spec properties, the impact on landlords, CRE sales volume and investment surge by market, the build-to-rent trend and its impact on multifamily, and multifamily rent growth by market. Are you feeling hopeful going into 2022?

 

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