Emerging Trends 2022 Report: Flexibility, Resilience to Drive Commercial Real Estate for Next Decade

Flexibility, convenience and ultimately commercial real estate’s resilience will drive the industry over the next decade as owners respond to and recover from the COVID-19 pandemic.

That’s according to Emerging Trends in Real Estate 2022, an annual report jointly produced by PwC US and the Urban Land Institute (ULI). The report includes proprietary data and insights from nearly 1,700 leading real estate industry experts, gathered both through in-person interviews and a survey.

Consumer expectations of traditionally designed spaces have changed, and there will likely be a massive shift in the functionality of homes, offices, shopping centers and healthcare spaces, according to Washington, D.C.-based ULI.

Property markets that were once predictable will likely remain in a bubble of uncertainty, but decision-making confidence has improved since last year, the report found. Three-quarters of respondents in the 2022 survey report feeling confident making those same long-term strategic decisions compared to less than half in the 2021 survey.

Property investment is top of mind for institutional investors in both traditional and alternative sectors as risk remains low and interest rates stay attractive. Urban landscapes are facing change as new land uses and updated zoning allow markets to evolve.

All these factors remain under the cloud of climate urgency, prompting new ways of standardizing and measuring environmental, social and governance (ESG) requirements. As businesses approach ESG issues in the real estate sector, it will be imperative for them to take a holistic approach and create a strong overall strategy to help create sustainable advantages and value.

“There is clearly an optimism within the real estate industry for its prospects in 2022 and there is undeniably a weight of capital available for investment,” says Anita Kramer, senior vice president of ULI’s Center for Real Estate Economics and Capital Markets. “Yet the ground is shifting and we are seeing long-term and lasting changes in a range of key areas, including the relative prospects for property sectors and locations; the extent to which we use various property types; and our attitudes toward the industry’s role in climate risk and decarbonization.”

“An abundance of investable capital, low interest rates and a continued demand for many product types has created a positive environment for our industry,” adds Byron Carlock, PwC partner and U.S. real estate practice leader. “However, not everything is rosy, and real estate still has its challenges ahead. There are rising costs, pending tax reform and new infrastructure spending that could impact the labor market.”

Carlock adds that there are various social issues that real estate stakeholders can take a leading role in helping to solve, specifically the creation and preservation of affordable housing, ESG-focused city planning and neighborhood inclusiveness.

“It’s important that regulators, policy makers and business leaders work together to establish trusted standards that guide responsible behavior in our new post-pandemic reality,” says Carlock.

As always, Emerging Trends featured the top 10 “markets to watch,” and again Sun Belt cities dominated the list. Survey takers were bullish on the real estate prospects of these markets, taking into account population growth, homebuilding outlook, affordability and job prospects.

This year’s top 10 markets are as follows:

  1. Nashville, Tenn.
  2. Raleigh/Durham, N.C.
  3. Phoenix
  4. Austin, Texas
  5. Tampa/St. Petersburg, Fla.
  6. Charlotte, N.C.
  7. Dallas/Fort Worth
  8. Atlanta
  9. Seattle
  10. Boston

Other highlights of the report include:

  • 82 percent of respondents consider ESG elements when making operational or investment decisions. A growing consensus sees the real estate industry as bearing much of the responsibility for climate change and being uniquely positioned to institute helpful improvements to help mitigate impacts and increase resilience to environmental risks.
  • Housing affordability worsened during the pandemic as home prices and rents barely paused during the recession and then quickly accelerated as the economy reopened. Costs of both for-sale and rental housing are rising much faster in secondary and tertiary markets as people fleeing pricey gateway markets such as New York City and San Francisco bid up residential prices in smaller destination markets. With housing production falling far short of new household formations, affordability will likely continue to deteriorate in the absence of significant private-sector and government intervention.
  • Working from home was relatively rare for the U.S. workforce prior to the pandemic, but it soared during the initial lockdown and is expected to maintain momentum among office workers. Almost two-thirds of real estate professionals believe that fewer than 75 percent of workers will come to the office at least three days a week in 2022. In fact, industry leaders predict that office space utilization will likely decrease between 5 and 15 percent within the next three years.
  • REITs and private investors have been much quicker to embrace a broader variety of alternative sectors, ranging from niche housing types (student and seniors housing) to specialized offices (life sciences and medical buildings) and warehouses (data centers and cold storage). These sectors are now gaining interest from a wider range of investors because they generally offer higher returns at lower prices, often at limited risk.

This is the 43rd year of the Emerging Trends Report. It includes interviews and survey responses from nearly 1,700 leading real estate experts, including investors, fund managers, developers, property companies, lenders, brokers, advisers and consultants.

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