Several sectors within the Midwest commercial real estate industry—from office and industrial to retail and multifamily—are entering 2022 with a unique outlook driven by factors like evolving workplace flexibility, increasing market inflation, lingering supply chain issues and a strong consumer desire for experience.
As the Midwest’s leading, full-service commercial real estate firm, Farbman has a front-row seat to the many trends affecting the region. Here is our outlook for 2022, broken up by sector.
Office Real Estate Trends
With hybrid and remote work models continuing to disrupt the way organizations operate, leaders will turn into 2022 with more solidified plans for the long-term future of their office space. About a third of Midwest office tenants are expected to downsize or right-size as they try to adapt to evolving team needs in the new world of work. As this occurs, you’ll start to see other companies buy up the resulting value—for example, paying the same price to upgrade from class B to A office space.
Office building owners and landlords are also continuing to build speculative units in the 3-5K sq.ft. range in an attempt to meet demand for quick-turn, move-in-ready space. Some are even filling spec spaces with gently used office furniture to counterbalance supply chain setbacks on new orders. Those who make the investment in turnkey office space will reap the reward of securing tenants looking for near-immediate occupancy.
Industrial Real Estate Trends
The industrial real estate sector will continue to be a tight, competitive market in 2022, as space in the Midwest and beyond hovers past 98% occupancy. With global supply chains still rebounding, product in limited supply and consumer demand at higher levels than ever, there will be a big push toward ground-up speculative development to accommodate production accordingly.
Aside from new construction, industrial organizations are optimizing their real estate by moving the office component out of the warehouse and into nearby office buildings. This strategy allows production teams working at capacity to build out more room for operations, without the substantial cost of having to identify or construct a new facility entirely.
Multifamily Real Estate Trends
Multifamily real estate in the Midwest will continue to be built and developed in 2022, with the continued focus of turning class C office buildings into apartments, senior living and affordable housing. Senior living and low-income housing, in particular, are set to grow considerably due to an aging Baby Boomer population, widespread individual stimulus dollars and increased federal funding for affordable living space.
Just as retail emphasizes experience, so, too, are new senior living communities supporting the demand for higher-end, concierge-level service—a stark departure from the senior center of yesteryear. During the pandemic, the availability of funds to be part of these new developments was strong, but leasing rates didn’t reflect the expectation as seniors held onto their money. Expect that to change for the better heading into 2022 and beyond.
Retail Real Estate Trends
Despite rising inflation and persisting threats from the pandemic, consumers are excited to shop offline again. This was demonstrated most recently during a holiday shopping season that saw higher-than-expected turnout for in-person retail. A global supply chain lag only aids this resurgence as more people want to walk out of physical stores with products in-hand rather than chance their orders to a backlogged shipping system.
In 2022, the retail real estate sector will also place emphasized priority on experience—renovating or building out new space that activates the senses, facilitates increased connection and further distinguishes itself from the impersonality of online shopping.
The Midwest commercial real estate industry is at an inflection point. Knowing how to capitalize in each sector will help building owners and landlords stay competitive in 2022 and beyond.
Engaging a full-service CRE partner like Farbman Group can help spark positive change within your investments. Contact us and get in touch with an expert today