By Indhira Desangles
As is common at this time of year, we learn about the forecasts for different areas of the economy, which serve as a basis for strategic planning for the new year. The real estate world is no exception, so I'm sharing the four predictions that are expected to impact the corporate real estate sector.
As key points, the industrial and multifamily sectors look the most promising for next year; the retail and office CRE should perform well, but will have some challenges to overcome, while REITs remain a promising avenue for overall profitability.
- Industrials will remain hot
Demand for warehouse space in the logistics sector drove prices to record highs and vacancies to historic lows during 2021. E-commerce is a major driver of this, with Amazon (NASDAQ: AMZN) accounting for nine of the nation's 10 largest warehouse construction projects.
But Amazon isn't alone. Retailers of all sizes, from Walmart and Kroger to Etsy artisans, are driving the growth of distribution facilities. Manufacturers will also need more space as they look to start keeping more parts in stock on-site or nearby, shifting from "just-in-time" inventory practices to "just in case.".
A couple of real estate investment trusts (REITs) to consider in this space for your investment dollars include Prologis (NYSE: PLD) and Terreno Realty (NYSE: TRNO).
2. Multi-family homes will also stay warm
As with the industrial real estate sector, multifamily investors can expect strong demand to support higher rents in most markets across the country, according to the National Association of Realtors (NAR). Rising mortgage rates and home prices impacting affordability for many, along with lagging construction activity and demand, will continue to be factors, the trade group said in its fall forecast.
The report projects that multifamily unit rent growth could remain around 10% in 2022. That depends on the market, of course. This year saw double-digit rent growth in 127 of the 390 major metropolitan areas, defined as having a population of more than 1 million. Leaders in this area include Tampa, Florida, which saw annual rent growth of 25.1% in the fourth quarter of 2021. In markets of 25,000 or fewer, rents in Hilton Head Island, South Carolina, experienced 24% growth during the same period.
The REITs to consider here include Mid-America Apartment Communities (NYSE: MAA) and AvalonBay Communities (NYSE: AVB)
3. Retail trade will continue on an uneven path
The pandemic was particularly hard on brick-and-mortar retail, and the shift to online shopping that was already underway only accelerated. Stores closed by the thousands, and while that trend has slowed, UBS still estimates that around 80,000, or 9% of all stores in the country, will close by 2026.
From a landlord's perspective, essential brands like Walgreens (NASDAQ: WBA) and grocery stores will remain stable tenants and anchor tenants, and individual entrepreneurs may be the right choice to fill mall and downtown space that was previously unaffordable for them. From an investor's perspective, the net lease structure that REITs typically use will continue to work well for those who have survived the retail apocalypse, including mall giant Simon Property Group (NYSE: SPG) and holders of diversified retail portfolios like STORE Capital (NYSE: STOR).
4. Offices will also continue to be a mix
There's a good reason why the ULI report predicts that nationwide office space rental growth will be slightly negative in 2022. The continued prominence of working from home, combined with the net effects of widespread resignation, will dampen demand in 2022.
While some companies have begun bringing people back to the office, the list of those who have not, including major employers, is long and is unlikely to shrink much, given the continued uncertainty of COVID-19 and the varying impact.
In fact, a report by PwC and ULI says that almost two-thirds of real estate professionals believe that less than 75% of workers will be physically present at least three days in 2022, and that office space utilization is likely to decline between 5% and 15% through 2024.
Suburban office markets have outperformed some central city business districts, and one of the best bets in the sector is life sciences.
So I hope that with these forecasts you have the information you need for your future real estate investments from 2022 onwards.
And if you would like me to share more information, specifically about the Dominican Republic and its corporate offerings, just contact me through my website: desangles.properties and I will be happy to assist you.
