What should business owners and real estate investors expect with regards to their commercial real estate portfolios in 2022? It is fair to say that since March 2020, businesses across the country have faced continual disruptions and shifting changes in the world of work, especially for those who normally occupy office space. While the vacancy rate for office buildings has risen to its highest level in almost two decades, industrial properties and warehouses have become highly coveted investments as e-commerce and digital purchases outpace traditional in-person shopping. With the virus still wreaking havoc with our daily lives, each of these segments of the business world have been affected. The question on everyone’s mind is will these shifts be permanent or temporary?
Let’s take a closer look at what is expected this year in each of the following segments of commercial real estate:
Office Space
For almost two years, office staff across the country have been mostly working from home. Recent polls by PwC suggest that many of these individuals do not want to return on a full-time basis to traditional office environments. In the era of the Great Resignation, employers are faced with a dilemma: should they embrace the work-from-home model or should they order their employees back to their cubicles? At this point, it looks as though hybrid arrangements are preferred. “When PwC Canada asked Canadian workers about their ideal work arrangement, the most popular option, selected by 36% of respondents, was to have an even split between face-to-face and remote working, while just 10% chose a traditional in-person environment.” Although office space will continue to be needed, business owners must be willing to accommodate a post-pandemic world of work that may include more flexibly used spaces. When this crisis is finally behind us, many employees will likely continue to work from home a few days per week; however, when they do go to the office, it will be essential that the spaces they return to encourage collaboration and team building.
Warehouses and Industrial Space
Industrial properties and warehouses continue to be strong investments driven primarily by the boom in e-commerce that has accelerated in recent years and has been further fueled by the pandemic. With traditional retail stores suffering from many consumers’ fear of in-person shopping or from continual shutdowns and restrictions, digital purchases have soared. In Q4 of 2021, the vacancy rates for industrial properties remained below 1% in 5 of 12 metropolitan areas that are tracked by Colliers Canada. In the other 7 markets, rates varied between 1 to 5.4%. This top performing asset class is expected to continue to boom and remain a competitive market throughout 2022.
Retail Space
Hopeful that the pandemic will soon be behind us, many investors are crossing their fingers that shoppers will be eager to return to a traditional retail environment. While foot traffic may increase when the pandemic ends, many retailers have pivoted and begun to integrate e-commerce into their businesses and many traditional retail spaces have begun transforming. According to PwC, there is a “trend towards building mixed-use communities with retail services and offices nearby… like condominiums or multifamily rentals in place of parking lots which serve to provide more foot traffic for retailers.”
This year, investors can expect the industrial asset class to continue to perform well, while retail investments will continue to undergo change and a transition toward more mixed-use development. Owners of office space should focus on innovation and flexibility in order to create meaningful work spaces for employees to spend a part of their work week.
1 Real estate businesses across Canada embrace disruption, and explore new opportunities to cultivate a thriving industry amid uncertainty https://www.pwc.com/ca/en/media/release/2022-emerging-trends-in-real-estate-report.html
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