Bouncing Back: JPMorgan Chase’s Al Brooks Gives His 2022 CRE Outlook
Industry trends, opportunities and challenges on the horizon as real estate owners and investors head into the new year.
Despite setbacks during the pandemic in 2020 and 2021, the 2022 commercial real estate outlook is positive. Although there were some surprises and overly negative forecasts surrounding retail and office, industrial continues to perform well and — overall — the future of multifamily looks bright, with a couple notable exceptions.
As we navigate the commercial real estate asset classes in 2022, keep an eye on these trends and opportunities:
Multifamily recovery: Multifamily and retail real estate markets have largely recovered from the early days of the pandemic. “Multifamily vacancies hit 4.7 percent in the third quarter of 2021, reverting back to levels seen at the end of 2019,” wrote Victor Calanog, Head of CRE Economics for Moody’s Analytics.
Effects of e-commerce: While e-commerce has impacted brick-and-mortar retail, its effects may have been overblown. People still want to eat at restaurants, get haircuts and purchase other in-person goods and services. “Although retail vacancies ticked downward by 20 basis points throughout 2021, they remained elevated at around 10.4 percent,” Calanog said.
Recovery on the coasts: Over the past year, many people moved to Nashville, Austin and other hot spots in the Central U.S. But not everyone. There was no mass exodus from the coasts or cities. Multifamily properties in New York City, Los Angeles and other coastal cities largely returned to pre-pandemic vacancy levels by the third quarter of 2021. However, lodging in areas largely dependent on tourism and on-site workers are recovering more slowly.
Hybrid work is here to stay: The future of offices is still largely unknown. Across industries, however, employers are embracing hybrid work. Even tech giants, many of which were committed to 100 percent remote work, are leasing office properties in major U.S. cities. Current employment numbers have led other, more traditional businesses to use hybrid work as a recruitment and retention tool.
Upgraded rental units: The increasingly high cost of single-family homes combined with renters spending more time at home has translated to demand for larger, higher-end units. For example, some renters are upgrading from a one-bedroom to a two-bedroom to ensure they have a place to work.
Addressing the “Missing Middle”: Across the U.S., there isn’t enough workforce housing, which is designated for middle class households, including those of teachers and firefighters. JPMorgan Chase is doing its part to increase supply, offering pricing incentives on multifamily loans to those who qualify through our Affordable Housing Preservation program. Moving forward, however, municipalities need to offer incentives. The industry must also draw on public-private partnerships to build more workforce housing.
Commercial Real Estate Opportunities
Increased affordable and workforce housing: Mixed-income housing developments—which combine market-, workforce- and affordable-rate units in one location—are an important part of increasing the affordable housing supply. Public-private partnerships also play a critical role in growing the number of affordable and workforce housing units, as does increasing housing density.
Updated infrastructure: An initiative to create and update infrastructure could enhance roads and bridges, which would help shorten commutes, enable quicker e-commerce last-mile deliveries and improve the economy. “Infrastructure investments tend to directly benefit commercial properties located in the area via increased access, higher quality amenities and services, and enhanced desirability for employers and households,” Calanog said.
Technology upgrades: MRI Software’s Multifamily Industry Trends Report, Summer 2021 found that electronic payment adoption has grown consistently since 2019. Notably, portal usage among tenants grew 180 percent from June 2019 to 2021, largely because of an increase in electronic rent payments. Resident demand for electronic payment and communication options is only growing. It’s time for owner/operators to embrace digital rent collection solutions .
Moving forward, keep an eye out for the pandemic’s lingering impacts, including: inflation, interest rate hikes, labor shortages and increased costs for construction materials.
2022 Priorities for Commercial Real Estate
The year ahead looks positive, with retail and multifamily asset classes rebounding and industrial continuing to thrive. Commercial real estate has also found innovative ways to increase the affordable and workforce housing supply. The public and private sectors must work together to prioritize infrastructure to help the economy grow.
Al Brooks is Head of Commercial Real Estate at JPMorgan Chase