Despite rising interest rates, the first half of 2022 saw commercial real estate performing well for the overall industry. Certain asset classes outperformed others as demographic shifts, macro-economic trends and political winds altered the global landscape. Secondary markets are expected to see continued investment activity and inflows of capital. Older commercial districts are being revitalized in cities like Memphis, and these redevelopment activities provide new opportunities for commercial real estate investors. Jacksonville, Duluth and Indianapolis are engaged in industrial district revitalization that is bringing new life and use to old railway depots, main streets and other retail spaces. Adaptive reuse of dead shopping malls, older hotel properties to housing and revamping obsolete office space will provide value-add projects for years to come.
Nava Streit Raziel, Principal of Streit Lending shares her advice to investors looking to build their commercial real estate portfolios in this shifting environment.
“Look for opportunities that will offer income flow and have potential to increase in value over time. Choose assets that offer a convenient location, near employment opportunities, and within communities that are poised for growth. And always conduct your own due diligence to understand every facet of your investment.”
Multifamily demand continues to rise with rents, as homeownership due to spiking interest rates, put purchasing out of the reach of many. Millennials who are starting families and college grads looking to rent homes are driving household formation. This population, including other groups like aging Boomers who are intentional renters, will drive strong tenant demand for housing through the balance of 2022 and beyond. There are opportunities in this sector, both in Class A properties as well as value-add Class B assets. Multifamily investment continues to be an important asset class and commercial real estate portfolio builder. California’s Inland Empire has experienced an influx of population, and increased workforce in need of housing that makes multifamily investment attractive.
Office occupancy continues to be an unknown as WFH and hybrid models may scale down the need for space. There is a noticeable flight-to-quality that has divided the market. Investors have been turning their attention and capital to Class A assets with great locations and desired amenities—like superior air filtration systems. Lower quality office properties may become obsolete and possible candidates for adaptive reuse. Medical office space will continue to experience strong demand as our population ages. Post-pandemic, there is a heightened awareness of the importance of maintaining a modern and accessible healthcare infrastructure.
Retail has performed well, as retailers shift their focus to high street shops, in favor of the mall. Smaller spaces have driven much of the growth, along with restaurant expansion. Secondary and tertiary markets have performed well in both the urban core and suburbs. However, there may be another wave of store closings, as Covid tenant protections abate and looming inflation is causing consumers to change their purchasing habits and choices.
Industrial has outperformed through the pandemic, as companies raced to find warehouse space to meet customers’ demand for online purchasing and home delivery. Logjams in the supply chain have taught retailers to plan for redundancies. The just-in-time business model will turn toward resiliency. Industrial buildings that are modern, offer adaptable and flexible floorplates and are well-located to transportation hubs will attract premium rents and tenants. The Inland Empire has become a choice market for industrial, due to location, proximity to major transportation hubs, population growth and relatively affordable land and labor costs in relation to Los Angeles and San Diego.
Streit Lending offers short-term construction and bridge loans in Southern California, from $500,000 to $10,000,000 at a loan-to-cost up to 70 percent, to build and rehabilitate commercial residential properties. Streit can tailor a loan to meet borrowers’ needs and offers quick, transparent and stress-free closings that help clients complete construction projects faster.