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Focusing on the Good News

Although some broader headwinds remain, the outlook for commercial real estate’s outlook remains bright.

With the Omicron variant sweeping through the nation in December and January, 2022 started on a sour note. In addition to a COVID-19 wave of previously unseen proportions, the U.S. was facing steep increases in inflation and political gridlock in Washington. And while the Omicron wave has ebbed, the pace of inflation is still high and Congress remains unable to pass much legislation as politicians are shifting their focus from governing to campaigning in the midterms.

In addition, recent days have introduced new uncertainty on the international front, with Russia’s incursion into Ukraine and Vladimir Putin posturing for more escalation. That’s already prompted a response from Western leaders in the form of sanctions, which could increase if Russian government decides to ratchet things up any further. Those sanctions can potentially worsen inflation in the U.S., especially when it comes to gas prices.

Yet in the midst of seemingly never-ending disruption, it’s important to notice positive trends and the commercial real estate industry in particular has plenty to be thankful for.

For one thing, two years into a global pandemic, the wave of property distress that was anticipated in the multifamily, office, retail and hotel sectors never materialized. Distressed hotels are just starting to trickle out into the market now and there is appetite for them from buyers who expect demand to bounce back. After a long break, investors are also beginning to look into regional mall acquisitions, in some cases planning to keep class-A malls operating, in others, when the properties are no longer viable as retail, planning to redevelop them into other asset types. Even in the office sector, which continues to lag other commercial real estate sectors in recovery, there are signs that demand from both tenants and investors is coming back.

All of this is happening in an environment where, in spite of expected increases in the Federal funds rate throughout the year, commercial real estate lenders continue to underwrite property loans and investors are increasingly seeing real estate assets as a hedge against inflation. In this story, we look at how banks look ready to provide plenty of liquidity to trustworthy borrowers in the year ahead. And CMBS issuance reached a 14-year high last year, driven by, among other things, single-asset single-borrower deals and demand for refinancing of 10-year loans.

All of these developments position the commercial real estate industry for another good year in 2022. And hopefully Omicron will be the last major wave of the virus for some time (or at all) and there will be more positive trends on property-level fundamentals in the coming months.

Read all of these stories and more in our Q1 2022 digital edition.

Contact Elaine Misonzhnik at [email protected].

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