Even With Headwinds, CRE Is An Attractive Investment

There may be headwinds for commercial real estate in 2022, but a new analysis by commercial real estate exchange site Crexi suggests that the coming year will be a good one, at least for property values and prices.

The firm points to inflation, worker shortages, rising interest rates, and supply chain problems as potential negative influences for CRE because they can drive up prices and operating costs.

However, there is also ample capital investors have to deploy as well as factors that could improve the economic outlook, including an increase in vaccine and booster rates, the bipartisan infrastructure bill that could deliver abundant indirect effects.

Crexi noted that “[a]verage Q4 2021 asking prices climbed 4.62% overall after a dip in transaction velocity in the previous quarter, rounding out a year of promising growth” as pandemic effects continue. Prices in 2021 showed 18.4% year-over-year growth, although that used 2020’s 5.6% decline as a baseline and would net out to an 11.8% increase over 2019.

Occupancy averages did drop from 84.63% in 2020 to 80.54% in 2021. Crexi said the reason might be rollover impact as “as absorption decisions were postponed and adapted to Delta and Omicron waves.”

Buyers were more active according to the company’s data and ended 2021 Q4 up 91% year over year. More than half of buyer traffic interest in properties was from out of state. There was increased search focus on “utility-specific, niche real estate investments” such as gas stations, car washes, and self-storage. Branded tenant searches for such names as Walgreens and CVS were down, likely due to announced store closures.

No surprise that industrial was a top-performing asset type in 2021 and even with less supply, pricing gains continued, with average asking price per sq. ft. up 9.12% in Q4. One reason may be less supply compared to the third quarter, with a 10.4% drop in new warehouse properties, 17% drop in manufacturing, and 8% drop in distribution.

Land asset prices were up 11% year over year. Occupancy rates that were at 51.19% at the start of 2021 reached 69.79% by the year’s end.

Winners in retail were multi-tenant assets like grocery-anchored shopping centers and single-tenant properties such as QSR and drugstores. Asking prices were up 4.75% in Q4 and 42.4% of offers in Q4 were for retail.

Office asking prices were up, particularly for flexible and co-working workspaces. There was also improved investor interest in office properties.

Finally, multifamily was also, unsurprisingly, a hot category, especially as on-time rent payments were strong.

Something to remember is that Crexi based the report on its own internal aggregated property-level data points provided by brokers as well as additional external sources “that we consider reliable, but we do not represent it as accurate or complete.” Data from customers of a firm is inherently self-selected and may not statistically represent a market.