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Commercial Real Estate Trends to Watch in 2022

Watch out for these commercial real estate trends in 2022.

Like other industries, the real estate sector is highly volatile, with new trends and patterns emerging at different times. No doubt, the pandemic hit many industries worldwide, with real estate being no exception.

On the residential side, the demand for homes reached record high levels as more people became serious about buying a home for security. As a result, mortgages were at an all-time low, and work from home arrangements became more common. However, the high demand was met with chronically low levels of housing supply, resulting in massive price increases.

On the other hand, the commercial sector saw varying effects. Some properties like healthcare facilities and data centers continued to soar, whereas others like hotels, offices, and retails plummeted in demand. As such, many questions have been raised about the future of this segment post-pandemic.

Now that 2021 is nearing its end, how is the real estate market performing, and what can you expect for the coming year? Here are some of the top commercial real estate trends to watch out for in 2022.

Low Interest and Mortgage Rates

The good news for commercial real estate buyers is that mortgage and interest rates are expected to stay low until 2022. Furthermore, in September 2021, the Federal Reserve announced that it would maintain the interest rate close to zero. Thus, if you plan to make any investments, now is the perfect time to take out a loan.

Increased Role of Retail

One of the biggest things to come out of the pandemic is undoubtedly the rise of eCommerce and online shopping. According to the US Census Bureau, the number of online sales reached $871 billion in February 2021, a massive difference from the $200 billion in physical sales.

What, then, is its implication in the real estate market? While brick and mortar stores are no longer as popular in retail, physical spaces will still be important for companies’ distribution centers, warehouses, showrooms, and stockrooms.

The demand for warehouse spaces, in particular, is expected to continue growing. In addition, due to the surge in eCommerce sales, businesses are now paying more attention to how their stockroom is organized to improve the efficiency of deliveries. As such, many are moving into larger spaces or looking for more strategic areas to lower transportation costs.

Growing Demand for Multifamily Properties

While multifamily housing saw some challenges in 2021, this segment is expected to rebound and come back stronger than ever in 2022. The flat growth is mainly attributed to the pandemic, but the forecasted growth for the following year is primarily due to “unbundling.” Essentially, renters are moving out of their family homes to find better job opportunities.

Similarly, many are once again seeking independence, the demand for multifamily rentals has soared. In addition, work-from-home arrangements are now on the rise, giving people more flexible work environments. As such, many are looking for convenient rental options that allow them to live in a particular place for some time until they want to move elsewhere.

The metro areas with increasing multifamily units include White Plains in New York, Louisville in Kentucky, Salt Lake City, Northern New Jersey, and San Antonio in Texas.

Shift Towards Suburban Living

If you are interested in real estate investing, you may focus more on the suburban housing market. Suburban living is one of the major real estate trends today as more people are now working from home and thus looking for bigger spaces to fit their home offices.

Similarly, millennials, who make up the largest share of home buyers in the US, are moving away from urban areas and leaning more towards homes in the suburbs because they can get more space at a lower cost. As a reflection of this growing trend, it was observable that major cities like Los Angeles, San Francisco, and Washington DC were excluded from the list of top real estate markets for the year.

Quality over Quantity for Office Spaces

Offices were one of the hardest-hit commercial real estate segments in 2020 as businesses were forced to shift to remote work. Thus, it is no surprise that the demand for office spaces will likely be lower in 2022 than in the pre-COVID times. However, what is worth noting is that companies who continue using offices will seek better quality spaces now.

For instance, companies planning to adopt a hybrid workforce will look for spaces with good ventilation systems, flexible spaces for social distancing, touchless systems, and other modern amenities. Similarly, while many companies plan to continue remote work arrangements, some may want office spaces for occasional collaboration.

Overall, the amount of office space leased is generally expected to stay low in the next year. However, for the companies that continue to utilize such spaces, they will be emphasizing quality more than ever.

Repurposing Malls into Other Spaces

Unsurprisingly, malls were also hit badly in the pandemic since people had to stay at home, reducing foot traffic. As such, investing in malls would not be lucrative if you retain the mall.

With that said, developers have been exploring the potential of developing these mall spaces, creating new investment opportunities. Vacant malls are gradually being repurposed into mixed-use properties, industrial properties, or fulfillment centers, all of which have high demand in the housing market. Moving forward, you can expect even more malls to be repurposed into properties with high demand.

Rise of Ghost Kitchens

At the height of the pandemic, several restaurants had to close down due to lockdowns and restrictions, so many shifted to pickup and delivery services. However, while restrictions may have slowly relaxed, restaurants are still operating at a limited capacity yet burdened by rental costs. To add to this, customers are still hesitant to dine in due to potential infections.

Because of all these changes, ghost kitchens have become more popular. These are onsite kitchens where restaurants cook their food and deliver them to customers. With this setup, companies can cut the costs needed to maintain a dining space or pay servers.

Slowdown in Home Prices

2020 and 2021 saw a huge increase in housing prices, owing primarily to the high demand and low supply. For instance, the median home price in popular markets like Austin and Phoenix saw an increase of over 30%, showing how big the market was in the last 12 months.

While sales volumes are still expected to be high next year, experts believe that the price growth in 2022 will likely slow down. A report from CoreLogic showed that the increase in home prices is forecast to slow to a 2.2% increase by August 2022, primarily because low housing affordability can reduce demand.

Realistically speaking, this slowdown is not an indicator of a waning market. Overall, the real estate market performance will remain strong and vigorous in the coming year. The main difference is that there will be a slight dip in price growth. But this should come as no surprise, given that 2021 registered several record-breaking numbers.

Emphasis on ESG Factors

Environmental, social, and governance (ESG) factors will be one of the biggest real estate trends to watch out for in 2022. Investors and developers now emphasize these elements when making decisions, especially because of the growing awareness of climate change and sustainability.

According to a survey by PwC, more than 80% of respondents are considering ESG issues when handling their assets, whether it be buying or selling new properties. In addition, large companies have also started assessing their investment portfolios to mitigate their climate risks.

Advancement of Property Technology

The pandemic has led to the adoption of more property technologies in the real estate industry. Nowadays, you will find many new tools and software that can help you analyze your investment portfolio and manage your properties.

Some of the early use cases for such technologies focused on property management, such as automating air ventilation and filtration systems. With some companies gradually returning to the office, property technologies are expected to play a key role in facilitating this transition. Thus, if you plan to buy a commercial property, you may want to explore your options and find those equipped with the necessary technologies.

Similarly, you can also expect these technologies to come into play during the shopping experience. For example, it is now possible to purchase properties or lease spaces online, allowing for a contactless experience from start to finish.

Find the Right Commercial Properties Today

The 10 real estate trends above will help you assess the most profitable segments you should keep an eye on in the coming year.

If you are looking for a real estate agent to help you design your investment portfolio, Anthony Maccaroni specializes in commercial real estate and can assist you in finding your dream property. Contact him today to discuss your needs.