5 CRE trends will drive the market in 2022

These hurdles and opportunities are changing how — and where — developers are looking to turn dirt, according to a new report.

Published Jan. 7, 2022

With COVID-19 still dominating headlines in 2022, real estate experts forecast which sectors are best positioned to overcome upcoming challenges and ultimately take advantage of opportunities in the next year.

For instance, multifamily and industrial remain the preferred asset classes in the real estate industry, but where does that leave the hospitality and office sectors?

Here are the five commercial real estate trends shaping market activity in the new year, according to a new report from Taylor Johnson, a public relations firm focused on commercial real estate. Since 2006, the firm has been distributing this annual look at the real estate market, which is a compilation of its clients’ predictions for the year ahead.Subscribe

Will the office finally bounce back?

Ever since remote work became the norm for white collar workers, the return to the office has been forecasted, but delayed over and over again. In order to convince employees to return to their desks in 2022, trends in the office market point to prioritizing health and wellness, embracing in-person collaboration and anticipating the many logistical challenges associated with hybrid work schedules, according to the report.

For example, the Fulton East office development (pictured above), a new 12-story mixed-use building in Chicago's Fulton Market District, offers its employees hospital-grade ventilation, hands-free elevators and antimicrobial surfaces, along with floor-to-ceiling windows, outdoor terraces on every floor and an 8,000-square-foot landscaped rooftop.

NAI Hiffman, an Illinois-based real estate services firm, secured the International WELL Building Institute's WELL Health-Safety Rating for 15 office buildings under its management, granting peace of mind to its building occupants that steps have been taken to reduce the risk of transmitting COVID-19 and other diseases, according to the report.

Hospitality expected to rebound

Business travel is expected to catch up to leisure travel in 2022, according to the report, which should bode well for the hospitality sector. In order to prepare for this expected travel boom, luxury hotels will "continue undertaking major renovation projects," according to James McHugh Construction, a Midwest commercial contractor with a focus in high-end hospitality.

The report also mentions that due to this expected increase in business and leisure travel, hospitality projects that were on the drawing boards before the pandemic are finally moving ahead in the construction process.

For example, plans for 525 South Wabash, an apartment, retail and hotel development in Chicago, designed by Washington, D.C.-based architecture firm BKV Group, were approved by the City Council. The development will replace an existing parking structure, and will include 405 hotel rooms in a 24-story tower, connected to a 36-story residential tower by a retail and amenities podium.

The approval shows not only a bounceback from city centers, but also interest from hotel brands in incorporating mixed-use components to their projects, according to the report.

Finding solutions to supply chain woes

Users across industries are retooling supply chains, according to the report, meaning manufacturers, retailers and third-party logistics companies are gravitating to sites near population centers, highways and airports.

As space near seaports is extremely limited, developers will be looking to move inland, while at the same time trying to offset rising transportation costs, according to the report.

For example, CRG, a St. Louis-based real estate development firm, is developing Class A warehouses in Bryan County, Georgia, about 25 miles from the Port of Savannah. With an expansion of the port expected to significantly increase capacity, the development project is "strategically positioned to address the resulting demand for industrial space," according to the report.

Supply chain challenges at the beginning of the pandemic are just affecting real estate now, said Adam Roth, executive vice president of NAI Hiffman. Rising transportation costs, rail changes and insurance costs are making manufacturers rethink their operations, either by adding distribution and logistics facilities or producing locally.

For example, in announcing its 157,656-square-foot, full-building lease at HSA Commercial's Bristol Highlands Commerce Center in Bristol, Wisconsin, candy manufacturer Haribo of America cited the importance of the new warehouse – located just two miles from the firm’s first-ever North American production plant – in unlocking a logistics and supply chain capacity expansion throughout the U.S., according to the report.

A rising preferred asset class

COVID-19 vaccines along with other drug developments spurred activity in the health sector the last couple of years, a trend that should continue in the months ahead, according to the report. With many offices and retail spaces still not being used, those buildings could be re-adapted into life science-type spaces.

For example, Jim Adler, executive vice president of the office services group of NAI Hiffman, recently represented Mira Care in the sale-leaseback of a 48,000-square-foot office building in Illinois that is being converted to a 30-bed acute psychiatric hospital and outpatient center. The report mentions to expect to see more reuse projects like this in the coming year.

Cash at the ready

During this latest period of market volatility, private equity and real estate investment firms have been stockpiling cash, according to the report. That makes the 2022 environment much different than the economic environment during the Great Recession.

Investors will be looking to deploy that capital while the cost of borrowing remains low, so while popular asset classes like multifamily and industrial could see loads of cash, expect investors to give the retail and hospitality sectors another look as well, according to the report.

Mark Perkowski, vice president with the commercial finance group at Draper and Kramer, a Chicago-based property and financial services company, said he expects to see "more capital available for financing retail centers," adding that retail properties that remained successful through the lows of the pandemic will be pursued by lenders in deals "they wouldn't have 12 months ago."

He added lenders that typically preferred flagged hotels driven by corporate travelers now favor boutique resorts and extended-stay properties that performed particularly well during the pandemic.

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