CBRE: Commercial Real Estate Growth, Investment Likely To Grow

Chart credit: CBRE

Next year could set a record for commercial real estate investment amid economic and real estate recoveries, major fiscal stimulus projects and a rebound of big cities and downtowns, reported CBRE, Dallas.

In its U.S. Real Estate Outlook, CBRE said it anticipates 4.6 percent U.S. gross domestic product next year “as businesses and real estate hit full stride in their recovery from COVID-19 and related restrictions.” Investment volume could increase 5 percent to 10 percent for the year as low interest rates and growing international travel stoke demand. “And downtowns will bounce back as international travel and society’s gradual return to the office bolster offices, stores restaurants and apartments,” the report said.

Richard Barkham, CBRE Global Chief Economist and Head of Americas Research, said the firm’s outlook for next year is positive due to a number of “tailwinds” overriding deterrents such as inflation. “COVID-19 flareups still pose a risk, but governments and health authorities appear to have made progress in containment and treatment,” he said. “We see this rising tide further buoying the capital markets, multifamily and industrial & logistics sector and aiding the burgeoning recoveries of the retail and office sectors.”

CBRE noted it anticipates federal policy measures such as spending on infrastructure and social programs will add momentum to economic growth. It forecast that inflation will moderate through 2022, totaling 2.2 percent for the full year. “[We] foresee the Federal Reserve starting to raise the Federal Funds Rate by the end of 2022,” the report said.

Looking at capital markets, CBRE said it sees investment volume increasing up to 10 percent from last year to set a new record. “Industrial/logistics and multifamily remain the darlings, but investment in office and retail will perk up for the right assets in the right markets,” the report said. “Capitalization rates will hold steady as strong demand for assets offsets eventual interest-rate increases.”

The office market will likely remain favorable for occupiers due to elevated vacancy rates and other factors, the report noted. “The gradual recovery of office demand and leasing activity will carry over into 2022, although the timing of the large-scale return to the office may be affected by the omicron variant.”

Retail real estate could see 10-year highs for leasing and investment activity next year. “Retailers stand to benefit from pent-up demand fueled by personal savings built up during the pandemic,” CBRE said. “Investors will favor grocery-anchored centers, neighborhood centers, open-air centers and single-tenant drive-through buildings.”

CBRE said it sees U.S. multifamily occupancy remaining above 95 percent and net effective rents growing 7 percent in 2022. Construction completion could reach a new high, exceeding 300,000 units, which would rein in the performance of high-end apartment properties. “Occupancy in urban apartments [will likely] continue to recover as the pandemic recedes,” the report said.