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With a new year right around the corner, Commercial Property Executive asked industry experts to forecast the business and economic factors that will determine deal flow and pricing in the office and industrial real estate sectors.
Matt Field, President, TMG Partners
Matt Field, President, TMG Partners: Buildings with outdoor spaces that are connected to workspace, strong amenity packages, and state of the art health, wellness and ESG features will have a competitive advantage. It will be increasingly important to create product differentiation that provides employers with enhanced ability to recruit and retain employees and drive the benefits of a collaborative office experience.
Preston Young, National Head, Office Investor Services, Stream Realty Partners
Preston Young, National Head, Office Investor Services, Stream Realty Partners: We need to keep an eye on inflation and its potential impact on demand, overall. Obviously, there are many contributing factors, such as supply-chain disruptions, low unemployment numbers, possible infrastructure bill, and more, but it is certainly a topic at the forefront of most conversations.
Justin Kennedy, Co-Founder & Managing Partner, 3650 REIT
Justin Kennedy, Co-founder & Managing Partner, 3650 REIT: Across U.S. CRE markets, impacts of rapid new technology adoption and pandemic-associated shifts in societal behaviors and preferences are causing far reaching yet unevenly distributed changes in space demand. Fundamental changes in how and from where we work allowed by video conferencing, work from home, the Sun Belt boom and other similar dynamics are likely to persist and even accelerate in coming years. As such, while many newer and better-located properties offering modern amenities such as more collaborative spaces, highly integrated technology and upgraded operational systems will materially benefit from work-style changes, older and “commodity-space” buildings in low-growth sub-markets are ill-equipped for the future of work and likely face historically rapid obsolescence.
Roger McCarron, President & CEO, Project Management Advisors
Roger McCarron, President & CEO, Project Management Advisors: Tenants will look for more creative ways to use their space, driven by changing workplace norms. Office layouts must place a greater emphasis on collaboration and gathering employees to socialize and problem solve. In cities or regions where events, large meetings and conferences are being held, more people will be drawn to the office for fear of missing out on in-person time. It’s this draw that will bring employees back to the office. That’s good news for Class A office space, which will continue to attract tenants and will be the least affected by reduced office populations.
Nadir Settles, Managing Director & New York Regional Head, Office, Americas, Nuveen
Nadir Settles, Managing Director & New York Regional Head, Office, Americas, Nuveen: The life sciences/technology R&D subtypes have shown resiliency throughout the pandemic and will continue to be highly sought after from investors as an alternative to traditional offices in 2022. Technology, Advertising, Media and Information tenants will continue to be the dominant tenants in the market followed by Financial, Insurance, and Real Estate industry tenants as it relates to leasing velocity for office.
Jodi Pulice, Founder & CEO, JRT Realty Group Inc.
Jodi Pulice, Founder & CEO, JRT Realty Group Inc.: Two major trends that will continue to impact the CRE industry at large throughout 2022 are the pandemic and Diversity, Equity and Inclusion. The ongoing effects of COVID-19 and its variants are still creating some level of uncertainty, which will influence personal/professional behavior and decisions. In addition, Fortune 1000 firms and smaller companies alike are focusing on workplace and supplier diversity, so that their employee and vendor base is more reflective of their client base.
Allison DiGiovanni, Senior Managing Director, MRP Realty
Allison DiGiovanni, Senior Managing Director, MRP Realty: Desire for high-touch, hands-on curation of the experience inside of office will continue to be one of the elements that motivate people to return to their offices and rethink the way they use them. Bridging the gap between home and work with flexibility in how space is used and built will be the new normal for office management going forward.
Jim Connor, Chairman & CEO, Duke Realty
Jim Connor, Chairman & CEO, Duke Realty: Consumer spending is up, which requires more modern distribution space and improved supply chain logistics. With the e-commerce category expansion, consumer frequency and penetration, there is a need for more fulfillment centers and last mile delivery centers. We are seeing an increase in re-shoring or near-shoring of manufacturing and assembly to North America. Companies are investing in inventory expansion. Access to capital remains quite good, and we’re seeing strong buyer demand as investors rush to take advantage of the current lending environment.
Nichole Welch, Managing Director, Clarion Partners
Nichole Welch, Managing Director, Clarion Partners: The continued growth of e-commerce continues to impact every facet of our industry. “Just in time” inventory has become “just in case” inventory with retailers using every creative outlet available to replenish their shelves despite supply chain headwinds. As we look forward to 2022, I think scarcity will continue to work in industrial’s favor and remain a highly coveted investment sector. All major economic fundamentals, including historically low vacancy rates and cap rates, robust rental rate and sales comp growth and meaningful e-commerce demand point towards another strong year for industrial.
Dan Natale, Global Leader, Moore Global’s Real Estate Group & Managing Partner of Segal LLP
Dan Natale, Managing Partner, Segal LLP: Industrial real estate has been leading the real estate asset class, with the NCREIF Property Index indicating total annual returns of 16 percent for 2021, which is more than any other asset class. However, the availability of product in the warehouse sector has continued its downward trend. I expect these trends to continue into 2022. Notably, industrial space in densely populated areas will maintain high levels of demand as fulfillment and warehouse facilities continue to grow. But with diminishing supplies and continued demand there will be pressure on pricing for these properties the closer they are to large urban centers.
Jeff Cox, Managing Partner & Sales Leader, East Region, Stan Johnson Co.
Jeff Cox, Managing Partner & Sales Leader, East Region, Stan Johnson Co.: Access to capital remains quite good, and we’re seeing strong buyer demand as investors rush to take advantage of the current lending environment. Our clients are also watching the return to office policies communicated by large corporate employers, the growing labor shortage, and persistent supply chain issues.
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