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“What to Watch” Replaces “Wait and See” – Our four most important mid year trends in CRE

April 11, 2022

Over the past couple of years, real estate investors could only guess what the future held for post-COVID markets.  Today, as the pandemic’s impact recedes, answers to the question, ‘what’s changed and what hasn’t’, are clearer.

Here are our Top 4 Trends:

  1. There are winners and losers from the current wave of inflation.  On the winning side, put owners with long-term, fixed, low-rate debt whose properties are held on net leases with rent bumps tied to the CPI.  On the losing side, put owners with floating-rate debt  trying in vain to pass rapidly increasing operating costs along to their tenants.

  2. “The Office” ain’t what it used to be.  In the current  environment, the old re-run episodes of the “The Office” are quaintly reminiscent of  a bygone era.  Even before the pandemic, the rise of co-working and remote working policies provided ample evidence that our relationship with the office was changing. The pandemic accelerated and accentuated this trend.  Many workers are simply not willing to return to a traditional office environment.  The  resultant drop in demand for offices means landlords will need to get creative about alternative uses for vacant space.

  3. Distribution warehouse is the darling property type.  The pandemic put consumers’ appetite for delivered goods into hyperdrive.  While this was bad news for big box retailers, it has precipitated unprecedented demand for well-located distribution warehouse assets.  This property segment continues to benefit  from improving market fundamentals, dynamic changes in supply chains, and red hot demand from institutional investors.

  4. Demand for housing is insatiable.  Residents are placing greater importance on housing after spending so much time at home during the pandemic.  Developers are working feverishly to meet demand for housing of all types including novel “for rent” single-family residential (SFR) communities and multi-functional living spaces for remote office workers.  Add changes in the student accommodation and retirement living markets and it’s no surprise that this sector is attracting elevated levels of interest from private equity and institutional investors.