Phoenix American: 2022 Commercial Real Estate Trends Report

Phoenix American released the "2022 Commercial Real Estate Trends Report". Rental apartments in the United States are one of the hottest industries after the pandemic, characterized by surging demand and low risk of oversupply. During the epidemic, occupancy rates and rental growth in second-tier cities in the South and the West were significantly better than those in coastal gateway cities.

The office market has been hit hard by the pandemic, with new leasing activity slowing dramatically and new sublease space flooding the market. Many major employers plan to reopen offices in late summer or early fall. 70% of large office users plan to reduce office space by 10%-30% over the next three years, and the impact of working from home will continue to be felt.

The pandemic and the abrupt shutdown of large swaths of the economy in 2020 led to a surge in demand for warehouses across the U.S. as spending shifted online. While the e-commerce revolution predated the pandemic, the abrupt shift accelerated the trend by three to five years.

Retail property sector performance varies widely by region, submarket and retail property subtype. Second-tier cities such as Phoenix and Austin outperform gateway cities such as New York and San Francisco. Suburban retail properties tend to outperform main street retail in major cities. The e-commerce revolution, along with changing shopping habits and shifting consumer preferences, is blurring the lines between physical retail and logistics real estate.

The U.S. hotel industry just experienced an unexpectedly strong summer travel season, characterized by significant increases in occupancy and record-high average daily rates. Despite the peak season, the hotel market is not out of the woods yet. With the leisure travel season over and business travel still weak, industry observers expect performance to continue to be weak.

Real estate investment activity rebounded in the latest quarter with $177 billion in deal value, up 151% year-over-year. Total returns for core institutional real estate jumped 5.2%, the highest in a quarter since 2005. Environmental, social and governance (ESG) factors are gaining attention at all stages of the investment process. Investors have begun to exit the risk spectrum as low interest rates and intense competition in a highly liquid market squeeze cap rates.

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