Following a 2021 where sectors like industrial and multifamily outpaced prepandemic performance , and struggling markets like retail and office found some footing , many industry experts are expecting good things in 2022 , provided the U . S . and global economy don ’ t face an unforeseen calamitous event .

“ There ’ s a bit more realization that [ COVID-19 ] is here — that it ’ s going to be more of a constant ,” says Jim Costello , CRE , senior vice president of Real Capital Analytics . “ We are in a situation where we have to figure out how to adapt as opposed to the pandemic being something that will have a definite end .”

While many initially saw COVID-19 as something that would have a beginning and an end , the tail of the pandemic seems to be longer than expected . But this realization isn ’ t entirely demoralizing . The market fundamentals in commercial real estate provide reason for optimism — despite the continued threat of new variants , social disruptions , and global supply-chain difficulties .

Commercial property prices in the United States rose 6.48 percent year over year in 2Q2021 , up from 3.94 percent the previous quarter , according to the International Monetary Fund . In the year running through 2Q2021 , deal volume grew 81 percent , to $ 243.5 billion , according to Real Capital Analytics .

“ My expectation is that industrial and multifamily markets will continue to run very hot ,” says David Bitner , head of Americas Capital Markets Research at Cushman & Wakefield . “ I don ’ t think that they ’ re going to have anything like huge double-digit increases in volume that we saw last year , but that the pace of last year was completely unsustainable . … But there ’ s only so many times these assets can trade hands , right ? As we head toward 2023 , there ’ s going to have to be some passing of the torch to office and retail .”

LET THE GOOD TIMES CONTINUE Industrial rents spiked in 2021 , jumping up 6.7 percent compared to 4.8 percent the previous year , according to the National Association of REALTORS ®. NAR ’ s forecast for 2022 includes rents jumping another 7.4 percent in 2022 , with vacancies expected to stay at or below 5 percent .

“ The vacancies are so low — and even lower among higher quality product — that it ’ s difficult to even know what the rents are

POSITIVE OUTLOOKS

Snapshot of the U . S . Industrial Sector

Source : JLL

because you just don ’ t have availabilities ,” Bitner says . “ That ’ s how strong the market is .”

Considering the robust demand , industrial construction is trying to keep up . Absorption isn ’ t an issue , unsurprisingly , with nearly 70 percent of new product being preleased in 3Q2021 , according to a JLL report . Speculative development increased to 315 million sf , a record high for the industrial sector , but continued rent growth signals that the sector is hungry for more supply .

“ We are at a record pace for industrial construction ,” Costello says . “ And even with that high pace of construction , availability is still tight . It ’ s firing on all cylinders — and there ’ s nothing impeding it . If leasing starts to taper off , that could be a sign that the demand has been satisfied , but that ’ s not something I see happening soon .”

To put the sector in perspective outside of COVID-19 , the commercial property price index for industrial in late 2021 was up 18.9 percent over one year , 44.2 percent over three years , and 67.5 percent over five years , according to Real Capital Analytics .

“ Vacancies are going to stay low , though maybe they ’ ll rise modestly with some supply coming online ,” Bitner says . “ Rents are going to continue to grow at a

great pace . And if I had to say what ’ s going to be the best [ CRE ] sector over the next three years , it ’ s still going to be industrial .”

While labor shortages continue to be a problem , industrial appears to be a case of the strong getting stronger . The changes from COVID-19 , including the reliance on e-commerce and last-mile logistics , are hardly temporary , with industrial assets being a big winner in the pandemic reorganization .

HOUSING REMAINS HOT The housing shortage in the U . S . — and particularly in major markets like New York and San Francisco — creates a basic friction in supply and demand , a general trend that extends back well before any discussion of quarantines and social distancing .

“ Nationwide , rents have increased by 40 percent from 2010 through 2020 , whereas income has only increased by 22 percent ,” writes Steve Guggenmos , Freddie Mac ’ s vice president of multifamily research and modeling , in the government-controlled company ’ s 2022 outlook . “ This implies that , in 2010 , the average rent was affordable to households making 59 percent of the [ area median income ], whereas in 2020 , the average rent was affordable to households making roughly 68 percent AMI . Applying the forecasted rent and income growth trends to 2022 , we project that gap to widen out further , up to roughly 72 percent AMI .”

Multifamily vacancies dropped from 6.7 percent in 2020 to 5.1 percent last year , according to NAR , with that figure forecasted to dip to 4.8 percent in 2022 . Accordingly , rents grew 7.8 percent in 2021 and are expected to continue to increase at an accelerated rate of 10 percent in 2022 .

“ The home ownership market and the rental market are deeply out of balance ,” Bitner says . “ In a lot of locations , the rental markets have rebounded very strongly overall , particularly in the Sunbelt and suburbs , but home prices have been even stronger .

“ If you think of rents versus home prices as being in some kind of equilibrium in terms of the attractiveness of paying rent or a mortgage , it ’ s more favorable to rent . I don ’ t expect home prices to creep back downward to any meaningful degree in 2022 , which points towards continued growth for multifamily , although a bit slower growth than 2021 .”

Supply is ticking slightly upward , with 364,700 completions coming online in 2020 , according to the National Multifamily Housing Council . But fundamental obstacles to supply , including zoning ordinances and other state and municipal regulations , don ’ t appear to be dissipating , though regional migration trends align with locations more accommodating to developments . The Sunbelt , Texas , and Rocky Mountain states are seeing inbound migration , while the Midwest ,

Previous spread , photo by Alexander Spatari