WESTMOUNT INSIDER: 5 Market Trends for Commercial Real Estate in the U.S. Entering 2022

Cliff Booth, Founder & Chairman of Westmount Realty Capital – shares five factors as to what’s influencing commercial real estate potential as we turn over this year’s calendar.

The narrative of the 2021 commercial real estate market was preceded by the potential of doom and gloom. But intelligent investors showed Covid-19 how they could grow and succeed amidst the uncertainty of a global pandemic. Pioneers and true leaders in commercial real estate took a hard look at the transitioning market and recognized the abundance of opportunities that lay at their doorsteps.

Investors, developers, and lenders alike are continuing to respond to an excessive amount of transformation. The U.S. looked at shifts within the way people work, the demand and modification of industry, market migration, and many other subtle, yet vital evolutions as to what was generally known as standard industry practice and enterprise.

What does this mean for the market outlook into this next coming year? What changes, trends, and variables will lead how we continue to grow our bottom lines with this abundance of capital continuing to seemingly stretch prices through decreasing cap rates? Welcome 5 significant trends that we’re seeing as key indicators as we enter 2022 in this very positive, yet transitory climate:

 

1. This Pandemic Can’t Stop Growth and Demand.

Industrial is still surging in growth due to the increased demand within these markets. The restructuring of traditional business infrastructures has remodeled forward looking commercial operations into the expansion of industrial and logistics properties. The strong and growing e-commerce demand, for example, is increasing investments within industrial, data center, multifamily, and storage spaces.

Another growth sector that has changed the expanding trajectory of the commercial real estate market is the newly arisen opportunity for certain market participants to move away from traditional gateway markets. As Forbes seconds in their 2022 market review, the growth in our general population in addition to the ever-increasing market demand has made the secondary markets an evidently prime opportunity for commercial real estate investments.

 

2. Inflation Rise in the Forecast

As economists continue to extrapolate that the rise in inflation will continue in the coming years projections, the long-term numbers should continue to remain comfortably below the 3% rate. ULI’s real estate economic forecasting is also predicting increased inflation trends during the 2021-2023 period compared to that of the last spring. It’s important to reflect and manage this moving target to accurately prepare for its influence on underwriting, replacement costs, renovation cost, operating cost, and rental rate trends. Currently, we anticipate that construction costs should be expected to increase for the next 12 – 15 months before trending back down towards pre-pandemic levels.

 

3. Multifamily Still Booming

Contrary to generally anticipated concerns, many renters by in large successfully managed their rent expectations throughout the pandemic thus far. The cost of an inflated residential real estate market has driven potential owners away from consideration. As the costs of these single-family homes continues to rise, these individuals have elected to continue residing in rental units which with continue to both boost and strengthen the multifamily market.

In addition to this, suburban sprawl is increasing demand within smaller towns adjacent to more major metroplexes. This helps to balance potential supply issues due to pandemic conditions and simultaneously create new openings for continuing to produce significant returns. This robust demand for capital placement into the apartment sector has created a highly competitive acquisition environment and driven cap rates to all time lows.

 

4. Restructured Leases and Rent Growth

The industrial market continues to flourish, cultivating successful returns within commercial real estate investment deals and into the future. The traditional way of thinking about commercial leases was that the longer the term, the better. However, given the current inflationary environment and the uncertainty about its duration, the ability to mark rents to market quicker with shorter lease terms could be a new way landlords think about managing rent rolls moving forward.

CBRE published that the average industrial rent in DFW was $5.77 per square foot at the end of the third quarter was up nearly 17 percent from $4.94 per square foot during that period in 2020. The rent growth story has been strong across the country as low interest rates propel investors to bid aggressively. There will be a pleasant surprise in rent growth in the upcoming years for the infill, multi-tenant light industrial product because nobody is building that type of product, and there is tremendous demand for it.

 

5. Low Interest Rates Continue Forward into 2022

Assessing the outlook for financing conditions is an imperative tool in continuing to thrive and successfully close future deals. The current market continues to be brimming with debt capital liquidity, even considering our transitory market patterns or specifics within property type, and the commercial financing expectations are far from slowing down in 2022. Low interest rates and attractive returns relative to risk are a few factors driving this surge in demand and capital.

 

2021’s response to the pandemic’s effects has shown the innate ability for the U.S. market to be both flexible and resilient. Market performance has proven that the true pioneers in commercial real estate are not only demonstrating their expertise and value but also proving to illustrate what any good business leader strives to accomplish – the ability to tap into an accurate foresight within your market, adapt to predicted changes, and strive to sustain exponential growth in an uncertain market. 2022 only lends a positive outlook for these trailblazers.

 

 


 

Author: Cliff Booth

Cliff Booth is the founder and chairman of Westmount Realty Capital, LLC. With his relationship-driven approach and more than 40 years of industry experience, Cliff has earned the long-term trust of numerous U.S. and foreign institutional and private capital sources.

To learn more about Westmount Realty Capital or for additional information, contact us at info@westmountrc.com or find us at https://westmountrc.com/.

 

This article, and Westmount Realty Capital blogs in general, is intended for informational and educational purposes only, and does not constitute a solicitation or offer by Westmount Realty Capital, LLC to buy or sell any securities, futures, options, foreign exchange or other financial instrument or to provide any investment advice or service. Westmount is not your advisor or agent. Please consult your own experts for advice in these areas. Although Westmount provides information it believes to be accurate, Westmount makes no representations or warranties about the accuracy or completeness of the information contained on this article.

 



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