State of the CRE Market Survey Mostly Bullish: DLA Piper

Jeff Cox speaks with GlobeSt

Originally published by GlobeSt

The commercial real estate industry is having little trouble shrugging off today’s challenging economic situations and its optimism is brewing with recent pandemic restrictions being lifted, according to a state of the market survey from DLA Piper. 

The report, which was conducted in February and March, measures how attractive investment markets and overall expectations are in the sectors over the next 12 months. 

“While general bullishness remains consistent with the 2021 report at 74 percent, more respondents in 2022 have a higher level of confidence about the real estate industry’s next 12 months,” DLA Piper said in prepared statements. 

This year’s positive outlook in the abundance of capital in the market is a primary reason for the sentiments, with 52 percent of respondents citing it—an increase of 17 percentage points from last year. 

John Sullivan, US Chair and Global Co-Chair of DLA Piper’s Real Estate practice, said he expects most CRE sectors to strengthen over the next year. So do the commercial real estate experts contacted to discuss these findings. Read on for their takes on CRE in general and development in various asset classes.  

Reimagining Office Spaces 

DLA Piper’s predictions for the year include companies reimagining office spaces and the traditional workplace. Two-thirds (68 percent) of respondents expect it will take two or more years for office building vacancy rates to return to pre-pandemic levels. 

Chris Okada, CEO, Okada & Company, tells that as employees return to their workplaces, companies are turning to hybrid or flexible work models. 

“There is a greater need for offices to be redesigned or optimized to become more effective workspaces,” he said. “Even prior to the pandemic, office space was constantly evolving. Today, as more companies shift to hybrid strategies, the purpose of the office has changed. We are seeing demand for smaller footprints and flexible floorplans that can accommodate the changing number of employees who are onsite at any given time.  

“Companies are seeking collaborative space and social environments where workers can get together, but also stay safe—so health and wellbeing remain a key priority too. While there may be fewer employees on a day-to-day basis, there is greater utilization of today’s office space.” 

Chris Bond, partner, Turton Bond, tells that a number of global workspace and tech clients are undergoing efforts to understand what the “new reimagined” workspace looks like. 

“Whilst various layouts and models are being explored, at this time it is too early to say with any conviction what the new workspace post covid will be,” Bond said. “Despite initially reduced re-entry numbers, most of our clients are envisaging and preparing for a full-scale return to work in the medium to long term.” 

‘There Are Reasons to be Cautious’ 

Allan Swaringen, president & CEO of JLL Income Property Trust, an institutionally managed daily NAV REIT with more than $6.5 billion in portfolio assets, tells that “we also remain bullish on the outlook for commercial real estate, especially in favored sectors including industrial, multifamily, and healthcare-oriented properties.  

“While cap rate compression in these sectors may have subsided as interest rates have increased in the first few months of 2022, we believe there is still value to be found, especially with industrial and healthcare properties where new supply continues to lag demand.  

He said that counterbalancing interest rate increases is rent growth—at near record levels.  

“There also is strong investor demand for real estate, especially given the worst quarter in 40 years for bonds, and the ongoing volatility in the broader equities market,” Swaringen said. “Investors are seeking stable income that has the potential to grow over time and real estate continues to deliver in those areas.  

“There are reasons to be cautious as inflation persists and interest rates rise, though we believe that this actually provides an opportunity for core, lower leverage investors such as ourselves. Core real estate continues to prove that it is a relative safe haven for yield, especially with volatility in the bond and equities markets, and many investors, whether institutional or individuals, are looking to real estate to provide stable, long term cash flow in their portfolios.” 

Hoping 2022 Posts Strong Returns 

Victor Calanog, Ph.D., CRE, a member of the Economic Advisory Council of The Counselors of Real Estate and head of commercial real estate economics at Moody’s Analytics, tells “Moody’s is hopeful that CRE as an asset class will post good returns for investors and operators—at least for the remainder of 2022, despite increased headwinds.  

“Sectors like multifamily and industrial will likely outperform, and even some hospitality and retail markets might surprise. Still, it’s likely that economic growth will taper relative to 2021, so even as capital is deployed to CRE investments, savvy market participants need to focus on properties likely to maintain strong NOI flow: values are in flux in the near term given the rising interest rate environment.” 

Addressing Pent-Up Demand 

Jeff Cox, managing partner, Northmarq, tells that there’s been a fundamental and unprecedented disruption with COVID-19.  

“The pandemic has created unusually strong pent-up demand for risk-adjusted return, and we’ve seen strengthening activity since the height of the pandemic across virtually every sector,” Cox said. 

“The resilience of brick-and-mortar retail has been underestimated, and right now the risk/reward profile is very attractive to investors. Industrial continues to be an incredibly bright spot too as this sector plays such an important role in the overall supply chain system.  

“While we’re not seeing the peaks of e-commerce activity that occurred during the pandemic, e-commerce is here to stay without a doubt. Buyer demand is insatiable. For every one industrial building sold, there are 30 more investors that bid, lost and are still searching for similar product.  

“It’s in our DNA to be positive about market conditions, but I feel optimistic that we’ll be saying the same thing 12 months from now about industrial—the combination of existing supply coming to market and new product being delivered remains insufficient to satisfy current investor demand. 

CRE Feels ‘Seismic Shifts’ 

Thomas Foley, CEO of, said CRE is now “a space where seismic shifts that previously took decades are now violently accelerated in months because of COVID and a sufficient digital infrastructure.” 

Being on the right side of ‘work-from-home’ will likely come to determine the biggest winners and losers of the next decade. Interest rates rising will remove the mulligans received by many investors who benefited from rising values regardless of their execution, Foley said. 

“Traditional asset classes such as office and retail are still well overbuilt (more so now with WFH increasing), and those with cost effective ways to create value with that land or space will find success. 

“Work travel is likely changed permanently, which will impact hospitality—by how much, no one knows. And even the darling of the last decade, logistics, may find growth slowing as some of the largest users (Amazon) slow or even pause their expansion rate.” 

The US “desperately” needs housing—be it multifamily or single family, especially in the new migration markets, Foley tells “The current feeding frenzy of institutional SFR investors and VC backed iBuyers have been great for their own fees, but terrible for affordability and the end stakeholder—the homebuyer or renter. 

“Despite headwinds, the innovation and technology coming into the real estate space provide reasons to celebrate—from better ways to find and acquire deals like provides, to better ways to capture NOI through better OpCo/PropCo models than the first wave of unsustainable co-working/co-living companies, to additional ways to monetize assets—we are going to see a lot of exciting models that drive additional returns.” 

ESG Under-Represented in Results 

Lisa Stanley, CEO, OSCRE International, tells that she was surprised that only 31% of DLA survey respondents expect ESG to become a top priority this year. 

“This means that the climate-related environmental impact of CRE hasn’t yet widely earned high priority attention and the resources to effect needed change,” Stanley said. 

“Recently proposed SEC rules should be a catalyst for CRE stakeholders to finally focus on data governance—policies and rules that guide how companies collect and manage data within their organizations and can materially affect investment decisions.”  

This expanding emphasis on data encourages collaboration within organizations and across the industry to improve environmental impact for years to come, Stanley said. 

“Change leaders in CRE need to focus on the data—improving accuracy, consistency and transparency of data collected at the building asset level on a multitude of platforms to identify high-priority areas for improvement,” according to Stanley. 

“It’s the ‘G’ in ESG that supports the importance of data governance for effective corporate governance, and provides the resources to address the ‘E’ and associated environmental impact. Providing accurate, verifiable and transparent data for investors and others is no longer going to be optional. Better data means better-informed decision-making.  

“Can that older, less-efficient building be renovated, or does it need to be phased out? Having more timely and comprehensive data is invaluable in tackling emissions and scores of other environmental scenarios.” 

Investors Feel ‘Sense of Safety’ in Multifamily 

Karlin Conklin, Investors Management Group Principal & Co-President, tells that multifamily has a proven reputation for operating through market corrections.  

“Small private investors know this, and it’s a reason why multifamily is the most popular asset class for crowdfunding over the past decade,” Conklin said. “Strong operators with track records of solid management during the pandemic have only further boosted the perceived sense of safety in rental housing. 

“As players in commercial real estate, we’re looking for market disconnects. Our most profitable transactions have occurred as we’ve identified and capitalized on disconnects.” 

She said that inflation and interest rate increases can signal upcoming market disconnects, impacting a number of factors from cost of labor to cost of capital.  

“On the other hand, inflation and interest rate spikes drive more people to rent, creating an opportunity for multifamily developers and owner/operators to meet the surge in demand. 

“A key for us is discipline in our debt strategy and underwriting. When we keep our heads level and clear, we don’t get swept up in the trends born out of market disruption that ultimately increase investment risk.” 

© 2022 ALM Global Properties, LLC. All rights reserved. 

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