2022 Outlook Part 2: Expect Another Strong Year
As we mentioned in part 1 of CBC’s 2022 Outlook blog post series, the CBC team recently released its outlook on 2022 commercial real estate trends, which you can access here. In the first part, we took a closer look into the 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, and more. In part 2, we will provide insight that is backed by research and analytics, as well as explore a wide variety of real estate trends including the commercial real estate sales volume and investment surge by market, the build-to-rent trend, multifamily rent growth by market, and retail and industrial rent growth. 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.
Institutional investors are building industrial spec properties across the South and Midwest where rents have increased significantly. Retail landlords are readily signing short-term leases with high-credit tenants and essential businesses. 1031 exchange buyers are paying premiums for triple-net assets to lock in deals. Demand for residential development land, particularly build-to-rent communities, is intensifying. And small private investors are looking to buy anything with the most potential for growth. Outside of rural land, our commercial professionals are seeing very steady cash flows streaming in almost every sector.
Build-to-Rent is the new Multifamily
Build-to-rent (BTR) single family homes have emerged as a top product type that’s attracting significant attention and interest in many secondary markets. The pandemic-driven demographic shift away from crowded cities have led investors and developers to aggressively go after the growing demand for this product across all age groups, often times buying out tracts of land at prices only they could afford. Build-to-rents not only provide another channel for more homes; they also offer a better value proposition over multifamily buildings with higher-quality renters that turnover less frequently and can better absorb rent increases. Expect demand for land to grow further this year as it is a vital piece of the BTR process.
Essential Retail and Industrial
Small neighborhood centers anchored by grocery, QSRs and big box stores have experienced very steady business and excellent survival rates throughout the pandemic. Retail demand has been particularly strong in “A” locations where the demographics are the least impacted by inflation and housing rental rises. Many local downtowns are undergoing revitalization projects that will attract a stronger customer base and higher-quality tenants. To meet rising consumer demand, retail giants (like Amazon and Dollar General) have been building new properties in popular tertiary markets and those leasing warehouses in the bigger metros are seeing bidding wars. Industrial parks along interstate highways key for distribution are having to expand as they face historically low vacancies. The compounding forces of e-commerce and COVID-19 variants will continue to make products such as essential retailers, QSRs with outdoor seating, and last-mile distribution facilities preferred investment vehicles.
In part 3 of the CBC 2022 Outlook blog post series, we will dive into office demand, what’s driving strong self-storage performance, medial demand given the challenges of the pandemic, and our final thoughts going into 2022.