Commercial Real Estate 2022 Predictions: Truths, Hopes and Cautions

By this time, we’re saying goodbye to 2021, and have set goals and action plans for the new year. Our hopes are set, however the reality is, as I write this, the future is uncertain and getting harder and harder to predict.

Looking at 2022 in CRE, here’s what can we hold as true, what can we hope and look forward to, and what are we cautioning.

We find True:

  • More surprises are coming
    According to Andrew Martinez of Bisnow, three surprises that CRE experts missed for 2021 included: the exploding multi-family rents; office to everything conversions; and the global supply chain crisis. Sure, the supply chain is a mess right now, but that will eventually right itself, the other two worked out pretty well for some. Multi-family cap rates saw continued downward trends (CBRE Canada Cap Rate Report Q3 2021), and as offices convert to other things, including multi-family, medical and light industrial, they’re simply following market forces to meet the highest and best uses.
  • 2022 will have its share of winners and its losers too
    Distressed hotels through lack of tourism might not have capital to keep them afloat and we expect that some conversions will happen. London, ON just approved the conversion of an old iconic hotel into 72 affordable apartments, and Toronto’s very first skyscraper the Canadian Pacific Building has been approved to be converted to condos. These types of conversions will continue. 
  • We still have to work
    We’ve upgraded our homes to accommodate lock downs and flex schedules but there is a distinctive bell curve of need to be social. We all fall somewhere on that curve and it’s one we can’t flatten despite pandemics. We need to gather, collaborate and be present with those that we work with. The return to the office has been bumpy at best. As an office / retail Commercial Property Manager (anecdotally speaking) some of our larger national tenants had anticipated returning to work Q1 2022, but since the advent of the omicron variant that has been pushed off to spring or even indefinitely. At Sifton Properties, we are the experts that can help you discover or re-discover the work space and style that is right for you. It is what we do, what we work at today and for tomorrow.

We find Hope:

  • Stabilization in supply chain
    The unveiling of our fragile system of supply has been harsh in the light of the pandemic. A stabilization allowing for set construction schedules will be a huge improvement to new building and construction of all types. Abigail Ng and Wiezhen Tan of CNBC in an article entitled “Supply chain disruptions may ease in the second half of 2022” sites the following reasons that by this time next year our woes may be alleviated by: (1) Consumer demand has peaked and our shift to durable goods from services will wane, (2) Inventories that were reduced in 2020 have been restored to pre-COVID level, (3) Increased shipping capacity, although costs will remain elevated, port infrastructure and waterways are scheduled for improvement decreasing congestion.
  • The business of living
    With vaccination rates continuing to climb and our personal protections against COVID being joined across the country, we see improved confidence in our social and working lives. We are hopeful we can re-set our normal and get on with the freedom and business of living and enjoying our daily lives.

We find Caution:

  • Inflation Rate Panic
    The sensitivity of CPI on the CRE market real total returns is measurable. As inflation rates rise and interest rates follow suit, the effect could be more impactful due to the fact that this inflation bump is predicated on higher cost of goods and not as much on economic growth. Per the CBRE Econometric Advisors, NCREIF, Q1, 2021 the effect is most felt on office real returns: a 1% increase in CPI results in a -1.47% decrease in office real total returns (all other things being equal). This could be the push towards some of the conversions discussed earlier.
  • Pandemic Burn Out
    We control our lives not COVID. How we react to changing variants, mask mandates, inflation etc. depends our outlook. Recall the good things that COVID brought into our lives as positive reminders. Jeff Bezos apparently doesn’t take his first meeting until 10:00am and enjoys “puttering” in the mornings. The extra time we have with our family since we no longer have the long commute every day…the sense of control we feel by setting a new daily routine…the renewed gift of walking in the neighbourhood. There isn’t a lot we can control when it comes to this pandemic, what we can do is look after ourselves and each other.

  • Avoid Losing Faith in Ourselves
    Whether we are an adrenaline junkie and need to be moving fast to decompress, or it’s a warm cup of tea and book that relaxes us, find the time and space where you can collect yourself and just be. Be kind, be humble, believe it will get better.