DC Commercial Real Estate Trends on Tap for 2022

Return to office, greater emphasis on ESG, and new investment in industrial and multifamily are among what to expect in the year ahead, experts say


While office and multifamily have long been the darling asset classes of commercial real estate in the Washington, D.C., region, there appears to be much more energy around industrial assets and affordable housing heading into 2022.

Affordable housing is a huge focus for the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. That’s evidenced by the increase in affordable housing lending targets for the government-sponsored enterprises, or GSEs (properties affordable at 60 percent of area median income increase from 20 percent of the $70 billion cap in 2021 to 25 percent of the $78 billion cap in 2022), according to financing firm Walker & Dunlop.

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“The recent nomination of Sandra L. Thompson as director of the FHFA further confirms their commitment to this cause, as she has been a champion of affordable housing for years,” said Ted Patch, chief production officer of real estate finance for Walker & Dunlop.

Ian Anderson, senior research director at CBRE (CBRE), noted that there’s a lot to keep an eye on in 2022, but the firm has three trends it will be watching in particular.

The first is the economic and jobs recovery. That should continue, Anderson said, delivering above-average growth amid volatility associated with the threats from the omicron variant, higher inflation and the Federal Reserve raising interest rates. 

“The growth will particularly benefit the warehouse, apartment, data center and life sciences sectors, though we’ll see lagging performance from the office, hotel and retail sectors — all of which will have to endure another pandemic winter,” he said. “As a result, better performance will be pushed into the second half of 2022.”

A second trend is the return of the city — not yet to pre-pandemic norms, but getting closer without severe lockdowns or business shutdowns, as individuals adapt to a continuing pandemic. 

“The return of many apartment renters and increasing numbers of office workers and tourists will enliven the city, but more so towards the second half of the year as we emerge from another winter dealing with the latest variant,” Anderson said. “The third trend relates to growing environmental, social and governance initiatives [ESG], which will have a higher priority from governments and private organizations to promote diversity and combat climate change, among others.”

Ben Plaisted, executive vice president and co-regional manager in Washington, D.C., for Savills, predicts there will be an increased focus on how to make the office a place that people want to come back to.

“Companies that are committed to bringing their people back to the office — mostly in a hybrid model — are investing in spaces that promote collaboration and engagement such that the space offers workers an environment that they could not achieve remotely,” he said. “Which means more amenities, access to the best technology, wellness and a sense of community. We see a continuation and acceleration of this trend, with a pronounced flight to quality.”

The big story in 2022 will be the large-scale return to the office for organizations of all sizes, according to Matt Kelly, CEO of JBG Smith (JBGS). 

“This will likely be a period of experimentation as employers balance the tangible benefits of having their teams gathered together again with the desire of many workers to maintain a sense of flexibility that they have grown accustomed to during the pandemic,” Kelly said. “Striking the right balance will be important in terms of attracting and retaining top talent, especially in a tight labor market.”

Kelly will also be keeping a close watch on inflation and interest rates, and how they impact the debt markets, which have been driving property values higher and higher.

“We are continuing to advance our multifamily development pipeline in keeping with our transition to a majority multifamily portfolio,” he said. “From an office perspective, we remain laser-focused on the tech-heavy National Landing submarket that surrounds Amazon’s HQ2.”

Tech talk

Any company that is not using data and technology will have a hard time staying relevant in D.C.-area commercial real estate in 2022, according to the experts.

Walker & Dunlop’s Patch said that harnessing technology and data is increasingly becoming a game-changer for CRE, and that will be a big focus in 2022.

“We recently invested in Fortress Technology Solutions, which provides real-time operating and performance data to owners and operators,” he said. “Aside from these types of proptech that are available to our client base, we are also investing in technology that make us more valuable partners to our clients — aggregating large datasets, sharing information on our 1,800-plus transactions a year across the entire platform, and learning from our $110 billion servicing portfolio, which has data on millions of multifamily units.”

In 2021, Savills completed significant acquisitions of MACRO and T-3 advisers to better service its clients and bolster its project management, technology and life sciences sectors. 

“Moving ahead, we are constantly looking at what is important to tenants and occupiers of space and adjusting our platform and services to meet their needs,” Savills’ Plaisted said.

Landlords and tenants are also going to be more and more focused on ESG initiatives and evaluating how their space, location and building helps or hinders their ESG goals, many believe. 

For instance, Brookfield Properties will be laser-focused on prioritizing ESG strategies and intends to be a major player in this sectorin 2022, according to Cy Kouhestani, a senior vice president of asset management and leasing at Brookfield.

In many respects, 2022 will be similar to 2021 — economic growth will continue, but be pushed into the second half of the year due to the latest coronavirus variant, and the warehouse and multifamily markets will flourish as retail and office slowly climb back.

“The biggest difference should be the return of the city, where more activity is projected to increase in the form of more residents, more office workers, and tourists — all due to higher vaccinations and society learning to better adapt to another year of the pandemic,” said Kyle Schoppmann, president of CBRE’s mid-Atlantic division.

Keith Loria can be reached at Kloria@commercialobserver.com.