Commercial real estate will continue to outperform investment alternatives in 2022, led by non-traditional property sectors like manufactured homes, gaming, cold storage, healthcare and single-family rentals.
“What investors should look for in 2022 is for commercial real estate both in the public and the private market to outperform the average of investment alternatives,” Cedrik Lachance, EVP and Director of Research for Green Street, said in a recent video.
“We often compare real estate to corporate bonds—both investment-grade and non-investment grade. Looking at that comparison and then comparing it to the public market, it’s clear to us that real estate should continue to do very well in 2022 and therefore should be outperforming these asset classes.”
Lachance says inflation “will remain top of mind” for investors, but that commercial real estate will continue to be an effective hedge.
“Effectively at this point, real estate is an option on higher inflation because we don’t see it priced in the real estate versus investment alternatives,” he said. “So, use real estate as an inflation hedge if you’re concerned about further inflation gains over the next few years.”
He also said sustainability will continue to be a hot topic in 2022, and that investors who understand how to price the cost of going green will have an advantage over their competitors.
“In the US, we’ve seen a lot of evolution, in particular, that’s been accelerated during the COVID era,” Lachance said. “Now, investors are very sensitized to ‘the green risk,’ if you will, in the property market. As a result, you’re seeing many sophisticated owners taking actions. A lot of them have plans for either some net-zero targets, or a great reduction in greenhouse-gas emissions, and those plans are going to become more real in the coming years. This holds true for both public and private companies right now.”
That will translate into greater capital expenditures for building owners as they strive to achieve net zero. But with that said, “it’s truly not one size fits all per sector, so if you think about the office business, owners of quality, green or LEED-certified office buildings should greatly outperform owners of office buildings that are not going to take the green path,” he says.