Videos and Interviews
Three Trends for Investors to Watch in 2022
Cedrik Lachance, EVP and Director of Research for Green Street, sat down with Stacey Corso, PR Manager at Green Street, to discuss three trends for investors to watch in 2022 to remain competitive in the commercial real estate market. Lachance oversees a team of 60 real estate analysts who cover both public and private sector real estate.
Commercial real estate has seen an unprecedented increase in prices this year. According to Green Street’s November Commercial Property Price Index, prices have grown 24% year to date, which is 14% higher since when the pandemic began.
Against the backdrop of rapidly accelerating property prices, Lachance walked through the three trends for investors to watch in 2022.
Trend 1: Real Estate to Outperform Other Investments
Lachance: I'll piggyback on the comments about valuation and being 14% above pre-pandemic levels. What investors should look for in 2022 is for commercial real estate both in the public and the private market to outperform the average of investment alternatives. We often compare real estate to corporate bonds − both investment-grade and non-investment grade. Looking at that comparison and then comparing it to the public market, it’s clear to us that real estate should continue to do very well in 2022 and therefore should be outperforming these asset classes.
At the sector level, which would be interesting as well for investors, is thinking about non-traditional property sectors. In both the public and private sectors, manufactured homes, gaming, cold storage, healthcare and single-family rental (properties) are particularly attractive.
Trend 2: Real Estate Provides a Hedge Against Inflation
I’ll build on what I just talked about: inflation. So, I think inflation will remain top of mind (for investors) next year. Real estate tends to be a very good inflation hedge. We studied inflation from a CRE lens looking back at the 70s, obviously a period of high inflation, and thinking about some of the shorter periods of boosts in inflation since then. What we've observed is that commercial real estate in the public market that was our lab, tended to do better than equities and bonds during periods of quickly rising inflation.
Effectively at this point, real estate is an option on higher inflation because we don’t see it priced in the real estate versus investment alternatives. So, use real estate as an inflation hedge if you're concerned about further inflation gains over the next few years.
Trend 3: ESG Will Impact Property Owners Next Year and Beyond
The third one, to me, is sustainability and it's the growth of the E (environmental) in ESG (environmental, social and governance) that is becoming more and more important for investors. And that will see translate into much more action (among property owners and tenants) over time.
In the US, we've seen a lot of evolution, in particular, that's been accelerated during the COVID era. Now, investors are very sensitized to “the green risk,” if you will, in the property market. As a result, you're seeing many sophisticated owners taking actions. A lot of them have plans for either some net-zero targets, or a great reduction in greenhouse-gas emissions, and those plans are going to become more real in the coming years. This holds true for both public and private companies right now.
It will translate into more capex (for building owners), and that capex could be costly in the sense of reducing the value of some sectors in order to achieve net zero by 2% to 5% over time.
That said, it’s truly not one size fits all per sector, so if you think about the office business, owners of quality, green or LEED-certified office buildings should greatly outperform owners of office buildings that are not going to take the green path.
Look for sustainability to be an increasingly more important part of the real estate business in 2022 and beyond, and for investors that know how to price the cost of becoming green to have an advantage over others.
If you have any questions about what you or your organization should watch out for in 2022 and how Green Street's trusted research and data/analytics can help drive better decision-making and returns, contact us today!