Industrial property will keep on powering, rental growth is on its way back and sustainability will continue cementing its place among critical factors in investor decisions. These are some of the top themes for CRE in 2022 according to property agencies and analysts worldwide.
“There is good reason for optimism about continuing economic recovery,” AMP Capital chief economist Dr Shane Oliver said, adding that while coronavirus remains a threat it appears to be having a far less negative impact on economies as vaccines and treatments get the upper hand. Other outlooks share similar sentiments. According to the 2022 CRE outlook issued by US-based advisory firm Deloitte Insights, optimism around fundamentals prevails “despite some financial concerns and an evolving regulatory environment” while 80% of institutions expect revenues to be slightly or significantly better than 2021.
In Australia, Dr Oliver said unlisted commercial property “may see some weakness in retail and office returns” adding that unlisted infrastructure is expected to see solid returns.
Industrial property is forecast to retain its status as the best performing asset class propelled by the growing importance of logistics and need for warehousing and data centres. Now analysts say the much-publicised global supply chain issues and subsequent price hikes could augur well for local industries and manufacturers prepared to fill gaps in markets.
Industrial has been running hot for months especially in factory and warehouse-filled suburbs being transformed into lifestyle hubs by the addition of chic offices, residential and hospitality venues. In Brisbane’s inner-city suburb of Newstead for instance, a two-storey warehouse its vendors had been trying to off load for years sold in weeks for a bullish $7.425 million. The December sale equated to a $4.356 million windfall over 12 years for the vendors, who had paid $2.8 million in 2009. In Melbourne, an inner-city office building famous for its rooftop Skipping Girl neon sign sold for more than $20 million. The former factory is located in Abbotsford which is fast following neighbouring Richmond and Cremorne as next for gentrification, and like the Newstead property it too had been previously offered for sale and failed to find a buyer.
Easier to go green
Expect to hear a lot more about sustainability this coming year. Much publicity has ensued over the property industry’s environmental impact and especially around United Nations Environment Programme 2019 data stating that buildings account for almost 40% per cent of US and 39% of global greenhouse gas emissions.
In the next 12 months and beyond, analysts forecast an increasing number of products will appear that cater to growing appetites for sustainable investments. The trend is unfolding at the expense of older buildings with aging infrastructure: PwC data found 77% of institutional investors plan to stop investing in non-ESG (Environment Social Governance) products by or during 2022.
Countries are working toward greater efficiency and lower emissions from building stocks.
Hence the emergence in 2021 of the world’s first equities investment vehicle focussing on green building – the Invesco MSCI Green Building ETF (GBLD). The exchange traded fund created by global investment manager Invesco tracks MSCI’s Global Green Building Index, choosing stocks in companies that invest in buildings that are energy efficient, ‘healthy’ and built with earth-friendly construction materials. Another is the Vert Global Sustainable Real Estate Fund (VGSRX).
Research by Savills found the strongest motivator for sustainable investment is company reputation followed by the opportunity to increase returns. Colliers 2022 outlook lists “investing with intent” among major themes this year, with 75% of investors surveyed saying they now took social and environmental performance into account when strategizing portfolios. About 80% of investors also named rising construction costs of concern in the months ahead. Sentiment around market fundamentals however was generally positive.
Back to the office
Conditions for the beleaguered office sector will be far brighter in 2022 according to Knight Frank Australia chief economist Ben Burston. Office workers were already back at their desks in significant numbers he said, pointing to the latest Property Council of Australia survey which found triple the number of Sydneysiders working in offices by November 2021.
The six months to December 2021 had been a ‘wait and see’ period for most organisations, Mr Burston said, but inquiry had picked up especially from businesses needing meeting rooms and conference facilities. Another positive for the sector was the fact global investors were being so active within the Australian office market.
Major retail asset activity is a trend expected to continue into 2022 according to CBRE head of retail capital markets for the Pacific Simon Rooney. Trading of retail assets above $100 million in the year just gone was up 383% on 2020 Mr Rooney said, to hit a year-to-date total of $8.3 million. Regional shopping centres were the biggest movers over 2021, and major institutions will continue to look for strategic opportunities in 2022, he said.