Multifamily Has Been Outperforming The Commercial Real Estate Market! Will This Continue In 2022 And Beyond?

Multifamily has been outperforming the commercial real estate market!

Will this continue in 2022 and beyond?

 

Commercial and multifamily have been the strongest legs of the real estate market.

The commercial segment had an impressive run until the pandemic, when the entire sector faced the biggest challenge in its history, and is still recovering from the unexpected hit.

Conversely, the pandemic pushed the multifamily sector to new all-time highs, and its growth is still accelerating in 2022.

With major improvements under way in the commercial segment of the market, and the rising demand for multifamily, the main question is which one will outperform in 2022 and beyond?

Two different stories coming together on the path towards mutual success

The commercial real estate market showcased solid performance in 2021. Multifamily and industrial property markets outperformed historical patterns, and high vaccination rates pushed foot traffic back to retail brick-and-mortars, supported by high rates of personal and business travel and spending.

The physical workplace is far from dead. Although, it must evolve and upgrade to keep up with the shifting market preferences. Despite the fact that the office market is experiencing its biggest vacancy in decades, investors may expect occupancy and rent growth to normalize this year.

Employers are being pushed out of high-density metropolitan areas with high costs and into larger, more cost-effective regions as hybrid work and employee preferences evolve.

However, the quality office factor should continue to increase as businesses respond to the need for attractive facilities and flexibility in their workspaces.

Given the strong demand fundamentals in the major property markets, commercial real estate demand is very likely to increase in 2022.

This year, U.S. e-commerce sales will make up about 14.5% of total retail sales, or $709.78 billion. By the end of 2024, that percentage is expected to grow to 18.1% of all retail sales, with online sales exceeding $1 trillion. As a result of these trends, U.S. demand for industrial real estate could reach an additional 1 billion square feet by 2025.

Hotels, retail brick-and-mortar stores, neighborhood centers, strip malls, and single-tenant retailers are posting strong performance. Consumers are showing affinity for both online and in-store purchasing, so demand for industrial space is projected to remain strong.

The demand for warehouses and distribution facilities will be driven by the demand for last-mile delivery services, which will be provided by brick-and-mortar stores to supplement in-store purchasing.

The adaptive reuse of office space for other uses such as multifamily housing could increase investor interest for industrial or office properties, especially the older properties that are suitable for such conversions.

Smaller retailers like community centers, strip malls, and single-tenant stores are likely to continue driving expansion in the retail brick-and-mortar industry.

Malls are increasingly turning to experiential shopping, such as lounges and family friendly activities and amenities are set to promote in-store traffic, and consequently, consumer traffic is expected to increase in 2022.

What can real estate investors expect in 2022 and beyond?

The multifamily market is posting the best performance in its history. Rental demand is skyrocketing, especially in the Sun Belt region, and rising property values are creating incredible returns for multifamily investors. Which multifamily markets are expected to grow the fastest? Generally, prices tend to appreciate where jobs are available and where migration rates are the highest. The highest increases were seen in more affordable secondary metro areas with lower rents and usually good job growth.

Companies and workers are expected to keep a healthy pace of migration to secondary markets with lower cost of living and lower office rents. This makes multifamily values to increase faster for suburban properties than urban ones in major metros.

Developers and investors are very optimistic about the prospects of cities like Dallas, Austin, Atlanta, Charlotte, Nashville, Miami, and Salt Lake City, based on the construction, business, and migration activity.

Secondary and tertiary markets have grown in popularity since the pandemic due to their better affordability and the opportunity for people to work remotely. They could pose great investment deals for real estate investors seeking to acquire promising value-add opportunities with an exquisite risk-reward potential.

 

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Telephone: (954) 570-0300

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About Adivo Construction

We are a national general contractor with over 50 years of combined construction expertise specializing in the value-add improvements of apartment communities.

Our mission is to assist our clients in finding the right balance between capital expenditure and appreciation potential by designing and executing customized renovation programs that are focused on increasing cash flow return and overall return on investment.

We have completed over 100 repositioning projects for publicly traded and privately held domestic and foreign companies in states such as Florida, Texas, Kentucky, Oklahoma, Georgia, South Carolina, Utah, North Carolina, Tennessee, Indiana, Michigan, Missouri, Arkansas, Ohio, Arizona, Nebraska, and Kansas.