Commercial Real Estate Market Expected to Grow Despite Rising Interest Rates — RISMedia

As rising interest rates pose a risk to economic growth, NAR Chief Economist Lawrence Yun expects the business market to perform well despite headwinds, especially in the short term. term.

During REALTORS 2022® Trade Economic Issues and Trends Forum of Legislative Meetings, Yun explained that while the trade market generally follows the overall economy, some things are different this time.

“Apart from the office sector, which is lagging as employers allow increased flexibility of remote working to retain and attract talent, commercial real estate continues to strengthen,” Yun said. “The industrial sector is booming, retail is turning positive again, the hospitality industry is recovering, apartments are doing very well and rents are rising across all business sectors.”

Yun added that the shortage of residential housing will lead to solid growth in rents over the next two years, with apartment rents expected to continue to increase by more than 10%.

Compared to the struggling office sector, Yun noted that the industrial property market is getting a boost from the shift to stockpiling “just in case” as wholesale inventory skyrockets.

“With strong demand, industrial rents are expected to continue to rise solidly over the next two years while vacancy rates will remain below 5%.”

Although the office sector continues to face challenges, Yun said not all markets are equal.

“While the overall office market is shaky, there are variances based on location. We have seen improvement in some mid-sized markets as businesses seek more affordable offices away from major US cities.

Multifamily investment volume in 2021 was the largest year for any asset class in history, with $352 billion in investments, according to Matt Vance, senior director, CBRE.

“Global economic uncertainty, persistent inflation and rising interest rates have increased the cost of capital and overall capital market volatility,” Vance said. “These terms have limited loan proceeds, which has had a negative impact on asset pricing.”

Vance expects that with the rise of hybrid work models, employees will spend an extra day or more working remotely compared to pre-pandemic trends.

“An average workweek with 3.5 days in the office would lead to a 9% reduction in office demand, but that’s if it could happen overnight,” he said. “Future economic growth and job creation will have a balancing effect on the impact of virtual work.”

Yun urged commercial investors to consider land development as an investment opportunity given the scarcity of developed residential lots that are essential to address the housing shortage. He appealed to local governments to relax regulations and land zoning ordinances, which real estate agents® reported have become heavier.

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