It’s no secret that the last two years have seen unpredicted ups and downs in the real estate industry. Staying up-to-date with commercial real estate patterns, trends, and news can lead to informed investment decisions.
Moreover, understanding the CRE market and predicted trends for the 2022 New Year will set investors up for success.
As you look forward, keep our top 10 development areas top of mind in the new year.
Capitalization Rates, Property Prices, Commercial Transactions, and Volumes
Capitalization rates are low and are predicted to stay that way, mirroring low interest rates. The CRE market boomed in 2021 as transaction rates rose 64% compared to 2020.
This coming year should not be any different. The CRE sector saw an increase in purchases of apartments and industrial properties and a decline in purchases of retail and office spaces as a reflection of the patterns due to increased work-from-home opportunities and internet sales.
Property transactions are predicted to continue rising in the new year due to continued economic recovery, and CRE prices appear to continue growing.
Senior Living and Skilled Nursing Facilities
During the pandemic, occupancy rates dropped in senior living and skilled nursing homes due to limited move-ins and capacity restrictions. As occupancy regulations begin to loosen, there are predictions that these living facilities will bounce back in popularity due to increased vaccination rates.
Storage Facilities
Self-storage facilities became popular over the course of the past two years sparked by the housing and apartment market demand. More people moving to apartments or different homes triggered the need for storage space.
Those working from home also found the need for self-storage to make room for the new in-home office. Continued housing and apartment market demands indicate the continued need for self-storage facilities.
Homes and Apartments
With the passing of SB9 and 10 in California, zoning regulations were eliminated, and commercial real estate investors have the unique opportunity to turn single-family homes into multi-family properties.
Home and rent prices are still projected to stay strong due to the ongoing labor shortage of construction workers. Typically, apartment rental and home purchase trends move in opposite directions of each other.
However, both rental and home prices have reached record highs as more people are looking for living spaces during the pandemic.
Brick and Mortar Retail Property and Sales
With an increased online shopping market, there is a delicate balance between online and retail storefronts. During the stay-at-home mandate, online sales spiked. With more relaxed rules and regulations, in-store sales are rebounding. The brick-and-mortar retail property may make a bigger comeback than previously predicted.
A Return to the Office
More and more businesses are returning to the office and looking to a hybrid approach. Working from home was an adjustment made by many. Now, as businesses open their office spaces back up, many are considering a more flexible in-office approach.
It will become important to focus on the spatial needs of businesses rather than how many people actually begin making the commute back to work. There may be a structural redesign of office spaces as people return to work post-pandemic.
Interest Rates and Inflation Rates
Although current inflation rates are expected to stay high at the beginning of 2022, rates are projected to gradually decrease as the year goes on.
It is thought that the Federal Reserve will most likely begin slowly gearing towards targeting short-term interest rates later this year. Long-term interest rates are projected to remain low, which is beneficial for commercial real estate investments.
Continued supply chain bottlenecks keep inflation rates high as the economy slowly recovers from supply shortages.
COVID-19
New waves of variants of Covid-19 loom over a full economic recovery. However, it’s predicted that commercial real estate and the economy will still recover despite variants this year.
Digital Real Estate
Digital real estate is a fast-growing market that is projected to continue strong growth in the new year. Heavier reliance on a digital world, increased digital entertainment all contribute to the demand for digital real estate sectors. It is definitely an area to keep an eye on.
The Return of Conventions
Reduced restrictions are the catalyst to allowing business and travel conventions to reappear. Economic sectors that felt severe impacts from the pandemic such as: hotels, the entertainment industry, restaurants, and more are likely to see a recovery this year.
While meetings may continue to remain online, the benefits of face-to-face business interactions are prompting the return of conventions.
Final Thoughts
These top ten predicted trends for 2022 are elements that commercial real estate investors should continue looking out for. Before investing in your next business venture, read our article on commercial real estate investing: is now the time?
