The past two years have been incredibly unpredictable for commercial real estate, especially given the uncertainty around the pandemic. The initial impact on the economy also took time to become apparent, increasing the ambiguity around the trends. It would be safe to say that the most prominent commercial real estate challenge for the past two years was our inability to make predictions.

Thankfully, things have settled down to some extent, allowing us to understand market movements. Having some information about commercial real estate trends is always necessary because it allows investors to strategize preemptively rather than react to the situation.

The CHRE team is optimistic about the commercial real estate prospects for 2022. Hence, this blog post will address some of the commercial real estate challenges investors need to prepare to make profitable investments.

Commercial Real Estate Challenges for 2022

Here are some of the industry’s challenges this year; however, they will have the most significant impact on investment yield in the long run.

1. Increase in Transaction Values and Prices

2020 saw a drastic decrease in transaction value because the market was too uncertain and volatile for anyone to make new investments. Commercial real estate started to recover in 2021; hence, the transaction value increased, albeit slowly.

Although the pandemic remains a problem, global markets have recovered enough for commercial real estate investments to resume. Therefore, the current increase in transaction values is impressive.

The only drawback of the sudden increase is a subsequent increase in prices. The market hasn’t had the time to reach equilibrium; hence property prices have shot up. The abnormality should subside in a few months; however, we will need to wait and see what happens.

2. Lack of Technological Innovation in a Digitized World

A key challenge commercial real estate faces in 2022 is the industry’s lack of technological innovation. The business world was steadily moving towards digitization even before COVID-19 hit, and the pandemic accelerated the process.

However, commercial real estate has historically lagged in this regard and continues to struggle. The lack of technological integration will limit innovation and might have a negative impact on overall growth.

3. Uncertainty about Return to Office

Most employers expected to return to offices after the pandemic was brought under control to some degree, but things haven’t gone according to plan. Several employees want to continue working from home or are demanding flexible working arrangements.

The fact that productivity did not decrease while everyone worked from home has made it difficult for employers to decline the demand without earning backlash.

Hence, the future of work and, by extension, office buildings remains uncertain.

4. Persisting Presence of COVID-19 Variants

The recent surge in COVID-19 cases after the emergence of the Omicron variant has become a pressing issue. It throws uncertainty over the future and will likely affect the demand patterns for commercial real estate.

 

Final Thoughts

In a nutshell, commercial real estate challenges for 2022 revolve around price escalations, lack of digitization, and uncertainty. Adding these factors to calculations when investing in commercial real estate will affect the overall outcome and profitability.

Please get in touch with the CHRE team to invest in commercial real estate. We have been working in the industry for several years and will help you find the best commercial real estate investments for your portfolio.