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STAYING IN THE KNOW: JANUARY 2022

STAYING IN THE KNOW: JANUARY 2022

The New Year is here! This last year was one of ups and downs for the world, affecting all sectors of life and economies. Even so, recovery efforts have withstood the challenges presented over the past year. With the holiday season ending and we move into 2022, we look at the current state of the commercial real estate world. With COVID lingering, we check out what happened in 2021, what to know about for 2022, and the trends we are seeing for the year ahead.

2021 at a Glance

Arguably the most disruptive trend of 2021 was the rising material prices seen across most raw materials. Iron, steel, and wood are some key materials that have seen their prices skyrocket and fluctuate over the past 12 months. Taken from “Sure, Lumber’s Expensive and So Is Everything Else” on GlobeSt.com, “According to the National Association of Home Builders, building materials prices are now 14.1% higher than at the beginning of the year, a big jump over the November year-to date increase of 3.9% over the prior year”. A few factors that have led this rise include an increased number of projects in the market, increasing shipping costs and shipping times, and a limited supply of materials.

                One of the largest trends of 2021 was the influx of investors to the industrial market, and rightfully so. With the pandemic highlighting so many issues with supply chains and lack of infrastructure in the US, the rush to industrial assets has been a no brainer amongst the rapid onshoring efforts across the nation. Prior to the pandemic, Industrial was already a hot market with the boom of e-commerce; with Cannon Green of Stream Realty Partners stating in a Globe St. article that, “The pandemic escalated the ecommerce push that was already in process and heightened the need for onshoring. The permanency of the demand will slow when these movements are complete. I do not see any major derailleurs in the next two years”.

                As more variants of COVID-19 seem to try and slow recovery efforts, commercial real estate investors have not been deterred, with CRE investor interest passing 2019 levels. While there have been plentiful obstacles faced throughout the pandemic, more and more investments are being poured into commercial real estate. Erik Sherman of GlobeSt.com states in his article “CRE Investor Interest Surpasses 2019 Levels”, that, “Even with the uncertainty, CBRE projects heavy investment activity next year, with investment volume up between 5% and 10% over 2021”.

What to Know for 2022

                Moving into 2022, certain trends will continue, while others will fade away; one thing that will not be changing are continued high construction costs. With the likes of lumber futures now over $1,000 per thousand board feet, 2022 is looking to be a year of volatility and uncertainty with material supply. Adding to this matter, is the act of the U.S. Department of Commerce’s move to nearly double “the duties to 17.9%” regarding softwood lumber from Canada. After a review in 2021, the U.S. Department of Commerce determined that the Canadian government was “unfairly subsidizing and dumping softwood lumber”.

                With the passing of the holiday season, retail is fresh on the mind of consumers and investors alike. According to a report by “MasterCard SpendingPulse”, this holiday season retail sales saw an increase of “8.5% year-over-year this holiday season, running from November 1 through December 24”. Americans are going into 2022 with above-average savings, and with COVID restrictions easing, consumers are ready for fresh retail experiences. With the retail sector still recovering, this presents ample opportunity for investors, landowners, and tenants alike.

                Following that note, Manhattan has seen its foot traffic and retail sales on the rise. Taken from a GlobeSt.com article, according to the Real Estate Board of New York (REBNY), the Times Square Alliance, who collects data on Times Square, reported “an average of 227,180 people visited the neighborhood during October, the most since the pandemic”. While these numbers have still not reached pre-pandemic levels, it is a good sign for the year ahead as the volume of inbound international travel increases.

Trends for 2022

                As previously mentioned, the Industrial sector has been a hot market, moving into 2022, nothing changes. The increased demand, rising rents, and onshoring efforts are large driving factors in this continued growth. According to CBRE’s “2022 U.S. Market Outlook”, markets such as “Nashville, Las Vegas, Reno, Central Valley California, Salt Lake City, Central Florida, San Antonio, and Austin” should see increased activity over the next year with regards to distribution facilities. To meet the large demand from distribution centers and manufacturing facilities, new construction efforts are underway to mitigate some of these higher costs associated with hot industrial assets.

                While these are ongoing efforts, the current problem of rising transportation costs, cargo-ship backlog and the associated supply chain delays continue to plague most sectors of the economy. In just the last year, the “cost to ship goods via ocean freight increased more than 200%”, with “the cost for domestic freight increased over 40%” according to CBRE’s 2022 U.S. Market Outlook. While shipping costs are expected to drop a bit, prices will still be elevated; this has created an opportunity for 3PLs within the industrial sector. 3PLs, or Third-Party Logistics, offer reduced logistics costs to enterprises, and their market share is expected to rise over the next year as companies look for new solutions to cut costs.

                Moving into 2022, retail is looking like a smart play; with plenty of opportunities and consumer spending forecasted to rise in 2022, retail is well positioned for the coming year. Retail investment has begun to show life as money has poured into the retail sector from venture capitalists. Specifically, much of the focus for these investments has been within logistics, supply chain management, and m-commerce. M-Commerce deals with the likes of mobile payment applications; M-commerce is relatively new but has an “estimated $295 billion in U.S. retail sales in 2021 and up to $660 billion in annual sales by 2025”, according to the 2022 U.S. Market Outlook by CBRE.

                The coming year is well positioned for the commercial real estate world; with heavy investor interest, a revitalized retail economy, and further onshoring efforts, the outlook for 2022 is bright. While the fundamentals are there, proper due diligence, coordination, and timely execution will determine the outcome. At SCGWest we take these values into every job we do; we are here to assist with any development, expansion, or redevelopment needs. Click here to learn more about what we offer.

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