The three remarks real estate professionals should consider in 2022 are flexibility, convenience and resiliency.
Why? Well, judging by the Urban Land Institute, specific property markets are bound to emerge stronger than before, pointing to the industry’s collective capacity to adapt to changing market conditions and future unknown risks.
Here they are… The key takeaways for real estate professionals to successfully navigate the industry through the year.
The rise in Interest of Alternative Sectors
In contrast to traditional assets such as office, retail and industrial, a much quicker way to embrace change is through a broader variety of alternative sectors.
These alternatives are usually niche sectors and proven to have higher returns at higher cap rates, and often with no risk.
Also, tenant demands in many of these alternative sectors are driven by economic growth, making them less volatile over the business cycle. Sounds appealing, right?
So, what are those alternatives we should pay close attention to? The report focused on four primary sectors:
- Housing (Mostly multifamily and student) – after a full year of negative net absorption, demand turned positive during the second quarter of 2021.
- Storage Units and Warehousing – renter demand is anticipated to exceed supply in the near future
- Life Sciences – greater demands for consumer healthcare services and new technology bursts the trajectory of this niche sector.
Healthcare and Life Science – A Transformational Trend That Is Continuing
The increased attention on the healthcare space is causing a shift within that sector. As healthcare and retail go through their transformations, we are seeing great demand for different types of healthcare properties.
Healthcare providers are trying to get closer to consumers, whether it’s off-site from medical buildings or in retail spaces, but what’s happening is that they’re moving away from old-school hospital campuses.
What’s Happening With Single-family Assets?
Single-family rental market can be a good bet for smaller or non-institutional investors. Owners could get inexpensive financing and renovate homes to create a portfolio of their own.
We can also expect some kind of vibrancy in the 1031 exchange market. Here, someone might sell family land, for example, and invest in an income-producing property.
This is mostly good news for small investors who can become particularly successful in their local markets. Try to get closer to your “home” ground and know what the particular needs are in those areas.
Sustainable Decision Making
This year is going to make operational or investment decisions shift towards these changes. That can mean incorporating it into underwriting, buying decisions or property selection and positioning of assets.
Growing risks of climate-related property damage may induce more investors to follow the market-level climate risk into their decision-making.
Other Social Issues…
The real estate industry is going to be focused on making housing more affordable, which severely worsened during the pandemic. Also, it is going to take a more proactive approach to promote diversity and inclusion within companies or industry groups.
We’ve now got an opportunity to take advantage of a very high demand for products in housing and industry, abundant capital for investment that’s growing, and inexpensive debt.
The big takeaway is that the outlook is very positive, but we mustn’t forget the constant danger of rising costs, labor shortages, and an infrastructure bill that will cause competition for construction labor and materials.
But generally, things are looking very positive! The industry has a lot of demand that needs to be satisfied. This is going to be a cycle focused on development and redevelopment (of older properties).