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Friday, October 7, 2022

U.S. Real Estate Market Outlook 2022

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Despite uncertainty from the omicron variant and other risks, a growing economy will fuel demand for space and increase real estate investment across all property types

Recovery resilient despite ongoing COVID threat

CBRE is maintaining a positive outlook for the economy and commercial real estate in 2022, despite uncertainty over the potential impacts of the COVID omicron variant and other risks. While the new variant will impact the timing of a large-scale return to the office, fiscal and monetary policy remains highly supportive of economic growth. There may be other bumps along the way, notably from the ripple effects of an economic slowdown in China and rising oil prices, but the factors that held back growth in 2021—labor shortages, supply disruptions, inflation, and other COVID variants—will ease. Monetary policy will tighten to keep longer-term inflation pressures in check, which may trigger some short-run volatility in the stock market, but it will not be enough to dampen investor demand for real estate.

We foresee a record year for commercial real estate investment, enabled by high levels of low-cost debt availability and new players drawn to real estate debt’s attractive risk-adjusted returns. Commercial real estate values will rise, particularly for sought-after industrial and multifamily assets. Investors will sharpen their focus on emerging opportunities in the office and retail sectors in search of better returns.

The supply/demand balance in the office sector will remain highly favorable for occupiers, but the pace of recovery will pick up following a sluggish 2021. With hybrid work, the new normal, office properties with amenities that enhance employee collaboration, connection, and wellness will fare best.

Retail, by contrast, is seeing the effects of a longer-term transition, which has included pricing adjustments, low levels of new construction, and beneficial investment in the best experiential and convenience-led centers. Sales-to-square footage ratios are surging and the demographic- and pandemic-induced shift to the suburbs will favor grocery-anchored and neighborhood centers. With strong forward returns now achievable, we anticipate a decade-high level of retail investment volume in 2022.

Industrial & logistics hardly broke step during the pandemic as e-commerce surged. 2022 will see slower demand for physical goods as the service sector reopens and attracts more consumer spending. This will give supply a chance to catch up with demand. Third-party logistics operators are beginning to dominate the sector and are looking to get ever closer to the end consumer.

Multifamily will continue its recovery in 2022, with downtown locations returning to pre-pandemic occupancy levels. Single-family rentals in the suburbs will also fare well as some millennials leave the city to raise families.

A notable trend in the second half of 2022 will be the return of downtowns. As business and tourist travel picks up, we will see a sharp revival in the hotel sector in gateway cities, alongside the already recovering food & beverage sector. This, in turn, will stimulate the return to the office and the fuller recovery of downtown life.

The outlook for real estate in 2022 is positive, with big cities potentially surprising on the upside. Amid this recovery, ESG, demographics, digitization, and decarbonization will take on new importance.

We have produced this report to help you navigate the macro environment we expect in 2022 and look forward to working with you in the new year.

The outlook for real estate in 2022 is positive, with big cities potentially surprising on the upside.

Continue to Chapter 1: The Economy

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