With inflation soaring to multi-decade-highs and markets clearly cautious in the face of the rising interest rate and the threat of recession on minds. As economic growth slows along with persistent inflation there is a lot of fear of an extended economic slowdown and dreadful stagflation. What happens to real estate, with markets changing and investors preparing for more turmoil for risky assets? As the close of Q2 nears it’s crucial that business leaders be aware of the changing trends within the real property market.
It is also a great hedge against inflation, which means it is a great location to put money into an unstable economy. By transferring money from the stock market to tangible assets, investors are aiming to reduce the risk that comes with a recession that is imminent. Here are some major trends and themes worth considering in 2022 and beyond.
The Multi- And Single-Family Residential Market Remains Hot
Multifamily industries have mostly been able to recover from the Covid-19 pandemic increasing to 4.6 percent vacancy rate in the third quarter of 2021, the same as that were in place at the year-end of 2021. Trends in demographics indicate that the massive exodus from cities has decreased and multifamily vacancies are recovering to pre-pandemic levels hot areas like New York and Los Angeles. The price hike for single-family homes has led to an increase in demand for larger units for rental that are able to accommodate remote work. The sales of new homes are slowing as the mortgage rates continue to rise. The average rate for the 30-year fixed rate mortgage is currently 5.23 percent last week, an increase from 3.1 percent at the start of the year, according to Freddie Mac. The higher rates and the soaring costs have put off many first-time customers, which has boosted rentals.
Pace Of Industrial Investment Figures To Slow
As businesses continue to grow over the next years, they might not be able buy industrial property at a reasonable rate. As interest rates increase while borrowing is becoming more costly as well as investment, and spending in general is likely to slow. If past experience is any indication consumers will be spending less and large companies will focus more on maintaining the flexibility of their balance sheets since liquidity is drying up. This means that there will be fewer buyers in an industry that has experienced massive growth because of the explosion of e-commerce as well as massive government stimulus. Amazon has already made public that it will reduce its investment in industrial property and leasing activities; other e-commerce businesses are likely to follow similar steps in the coming months as the demand slows.
Retail centers that have tenant mix which sell essential items supported by a national grocery credit tenant are becoming increasingly appealing to institutional investors since the country reopened following the pandemic. The capitalization rates for these kinds of stores continue to shrink with centers that are priced at 5.8 percent and lower to mid-tier centers selling for around 7.1 percent because of the mix of tenants and the grocery tenant.
This kind of property is becoming more appealing to institutional investors because of the consistent returns these properties brought during the outbreak. In the end, collections were high and vacancies were low. A good operator was successful in negotiating the right amount of concessions that would ensure their tenants were kept in the building and, even although online retailing will remain essential, I’m convinced that brick-and-mortar stores will not disappear completely. necessity retail , as demonstrated by the gains generated by the epidemic.
Businesses should keep an eye on the capital markets and their impact in commercial real estate for the next 18-24 months. I believe the residential property is expected to remain hot because many are forced buyers as well as a large amount of institutional interest however, a shaky macroeconomic picture could put pressure on the prices for the wider market. As inflation consumes the capital that is not deployed and market volatility could ruin the years of gains and investment, I think real estate will prove to be as a solid store of value relative to other properties.
