The commercial real estate market has had a rollercoaster of a year as far as 2020 (and even 2021 to an extent) is concerned. As 2021 is nearing an end, let’s discuss the commercial real estate trends that the coming year 2022 holds for investors and CRE enthusiasts! Read on for commercial real estate insights for 2022!
Just as the commercial real estate sector began enjoying the sunny weather in 2019, the pandemic struck, resulting in an overall lean period in 2020. Post-2020, the commercial real estate industry has been preparing to make a comeback. It is safe to say that 2021 has been fair-weathered for real estate compared to 2020.
In this blog article, we will discuss the commercial real estate trends 2022. Before we move on to discuss the commercial real estate trends, let us look at some commercial real estate insights from 2020 and 2021 to understand how the industry has performed over the past 2 years.
2020 saw stringent lockdown rules being imposed across the country owing to the pandemic. This gave rise to the work from home culture, with corporates and companies adapting to the work from home system, keeping the safety of their employees in mind. As a result, the commercial real estate industry took a dip in 2020, as demand for office and other commercial spaces dropped.
According to a Construction Week Online report, the office real estate market grew by 64% in Q3 against the second quarter of 2020, as the country opened up its economy post the lockdown. However, in the first quarter of 2021, the office market experienced a net absorption of 5.53 million sq. ft, and this is a 33% decrease compared to the final quarter of 2020.
The second wave of the pandemic hit the country hard in 2021, thereby pushing the leasing activity to the lowest in six years. According to a Savills research report, the second quarter of 2021 saw a 65% Quarter-on-Quarter decline in leasing activity. This decline is due to the lockdown and the severity of the second wave. Cities like Chennai witnessed leasing activity of about 1.1 million sq. ft. in the first half of 2021, noting a 41% Year-over-year decline.
Unlike older times, when larger deals (in terms of area) dominated leasing activities, the first half of 2021 saw smaller deals (up to 25,000 sq. ft.) taking over Chennai’s leasing activity, contributing around 60% of the total office space demand in the city. (Source: Savills Report)
Even though the leasing activity was at its lowest in 6 years, the commercial real estate sector at large seems to be bouncing back, with the future of office spaces looking brighter with companies slowly opening up. Real estate experts are placing their bets on the IT sector’s recovery to revive the office spaces segment of commercial real estate.
With that, let’s move on to discuss the commercial real estate trends for 2022 to see what the new year has in store for the commercial real estate sector and investors.
Commercial Real Estate Insights and Trends 2022
The commercial real estate industry took a dip in 2020 owing to the pandemic. But with the world learning to co-exist with the pandemic, office spaces have slowly begun to open up. Experts’ foresight suggests that the commercial real estate sector will recover completely by the end of 2022.
Let us go through the commercial real estate trends that 2022 has in store for us.
The leasing activity is predicted to pick up momentum right at the beginning of the year by January 2022. With vaccinations across the country well in place, corporations have already started opening up and calling their employees to the office. With the scope of international travel also picking up soon, improvement in leasing activity is one of the commercial real estate trends for 2022.
The commercial real estate sector is highly dependent on the IT and Corporate sectors, sketching out a solid work from office plan for their employees next year.
This again boils down to the reopening of offices. According to an article by Economic Times, co-working spaces are expected to see a rise in the absorption of seats between 20-30%. The seat absorption currently in 2021 is about 15% of the total office leasing by corporates. And experts have predicted that with around 75% of the workforce wanting to work from office spaces, the seat absorption percentage will only increase further in 2022.
In the Awfis Leadership Summit, 2021 speakers who were industry experts predicted that the number of offices will go up to 750 million by 2022, as against the predicted 670 million in 2021.
Ken McElroy, MC Companies, says that the U.S. is becoming a renter nation, and this trend is expected to continue through the year 2022. Housing costs have risen to the point where the percentage of people who can buy a home has plummeted and will continue to fall. Rental properties will meet the need for housing, just as they did during the previous housing crisis. We simply haven’t been able to keep up with demand by producing enough fresh inventory.
According to Alex Hemani, ALNA Properties, affordable housing inventory is scarce, and all homebuyers who wish to buy can only afford those types of properties. Builders are constructing homes that are out of reach for the average American citizen. Inventory is continually decreasing, and there are more buyers for those goods than ever before. Hemani says housing prices will continue to grow until it is no longer affordable to the general populace.
Our next commercial real estate trend is about retail real estate. Year-over-year e-commerce growth in the United States has increased to 44.5% in Q2 from 14.8% in Q1. Retailers, wholesalers, and third-party logistics providers have been under pressure to serve consumers while cutting transportation costs. Because of the rise in online shopping, retail-to-industrial conversion projects are expected to pick up steam in 2021 as demand for warehouse space rises to meet the spike in e-commerce growth.
In India, office spaces dominate the commercial real estate market. Especially with the growth that the IT and Corporate sectors have seen in the past decade, the demand for office spaces sky-rocketed, especially in the year 2019. It was expected to grow further in the coming years until the pandemic put a halt to the demand.
However, growth in office spaces will contribute majorly to the overall growth of the country’s commercial real estate sector, which dominates the commercial real estate trends for 2022.
Apart from office spaces, other commercial spaces, including those in malls and other public spaces, are also expected to perform well, with many malls and shopping centers now being opened up for longer hours and in some cases, even for normal working hours. This will contribute well to the growth in the commercial real estate industry.
The commercial real estate trends look bright for 2022, with the sector looking to open its arms to growth across wider horizons. Therefore, if you are looking to invest in a commercial property in India, now is the right time.
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