JPMorgan Chase’s Al Brooks Gives His 2022 Midyear Commercial Real Estate Outlook

Industrial and multifamily properties continue to perform well, and investors should keep an eye on climbing interest rates.


Despite rising interest rates — with the potential for more hikes in the coming months — commercial real estate has seen success in 2022. Although the forecast varies among asset classes, the overall industry outlook remains positive heading into the second half of the year.

Retail properties

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Strip malls in densely populated residential areas are doing well. Grocery stores, salons, fast-casual restaurants and other retailers offering in-person services are critical to the strong performance. As retail evolves, walk-in MRIs, COVID-19 testing clinics, medical providers and other tenants outside traditional retail categories may fill more shopping centers. Class B and C malls continue to struggle. They may be prime candidates for adaptive reuse. Their locations and proximity to parking could be used for the development of market-rate and affordable housing. Many of these malls also have dock doors and clear heights compatible with industrial use, so they can be ideal for warehouses and fulfillment centers.

Interest rate hikes

While nowhere near their all-time high, interest rates have steadily increased. The 10-year Treasury yield is also up. Interest rate increases are on the agenda for this year’s remaining Federal Open Market Committee (FOMC) meetings. Factor in the potential for higher interest rates as you consider commercial real estate investments.

Multifamily properties

Multifamily housing remains strong. Given the rising prices and mortgage rates in the single-family housing market, people are renting for longer. “Multifamily vacancies now stand at 4.7 percent as of the first quarter of 2022, below the 4.8 percent vacancy level we recorded in 2019,” said Victor Calanog, Head of CRE Economics at Moody’s Analytics. “Performance metrics remain tight, with asking and effective rents posting near-record highs in the first quarter of 2022. The new record is 8.1 percent effective rent growth in the third quarter of 2021 — more than three times the prior record of 2.4 percent set in the third quarter of 2001.”

Workforce housing could be an investment opportunity. There can be upfront costs to modernize dated apartment units. However, the demand for these units may outweigh those minimal costs. “Depending on how you measure it, we have a housing shortage of anywhere from 2 million to 5 million units at the national level,” Calanog said. “Add to that strong growth numbers for both single-family home prices and multifamily rents, and you have a situation where large parts of our workforce need not just more housing, but also more affordable housing.” The need for affordable housing still far outpaces supply. Adaptive reuse, modular construction and preservation are important tools in addressing the housing crisis. The biggest impact may come from public-private collaboration, such as big tech and healthcare employers working with local governments to develop workforce housing near workplaces.

Office properties

The war for talent includes new amenities. The labor shortage persists across industries. While the hybrid workplace is here to stay, on-site work can encourage collaboration and is necessary for many occupations. Companies are hoping to entice new workers with office amenities like outdoor space, daycare and catering. Although the best amenities vary from office to office, they’re critical to finding and keeping top talent. Organizations may rethink how they use offices. The previous standard was several hundred square feet per employee. Hybrid work reduces the number of people in the office, which may affect that calculation. Businesses should also consider the best use of the space. If employees are only in the office a few times a week, are cubicles, open offices or a different setup the best way for them to collaborate in-person?

Industrial properties

Industrial properties may expand their reach. Companies may opt to create single facilities for multiple business purposes, such as a shipment center with offices or a showroom. We may also see these locations add mothers’ rooms, gyms, complimentary snacks and other amenities typically reserved for offices. The industrial boom shows no sign of stopping. As e-commerce and demand for quick last-mile deliveries grow, so will industrial properties. “We’re expecting some slowdown in industrial deliveries,” Calanog said. “Still, if more goods continue to be ordered online and industries such as life sciences emerge, demand for industrial space will likely remain robust.”

What’s ahead for commercial real estate?

Multifamily and industrial properties have thrived in 2022. With healthy balance sheets, consumer demand could bolster retail, multifamily and industrial asset classes. Neighborhood retail in well-populated areas that offer in-person services has also done well. As the country navigates hybrid work, we’ll gain a clearer picture of how to best use office space. Keep an eye on interest rate hikes, supply chain issues and geopolitical events as well as ongoing relationships between public and private entities in affordable housing.

 Al Brooks is Head of Commercial Real Estate at JPMorgan Chase (JPM)