Phoenix American, a full-service fund administration provider for alternative investment funds, has published a new white paper examining the current state of the Commercial Real Estate industry and the prospects of its various sectors for the coming year. 2022 Trend Report for Commercial Real Estate: Uneven Recovery and Pandemic’s Lasting Effects analyses Commercial Real Estate in the wake of the Covid-19 pandemic and considerations for investment in 2022.

The paper draws on Phoenix American’s perspective as an administration provider for real estate funds and features contributions from noted participants in the CRE investment space.

Disparate Effects of the Pandemic on CRE

Top takeaways from the report include an analysis of the uneven effects of the Covid-19 pandemic on commercial real estate and the return of investment interest in the sector.

• Rental apartments are one of the hottest sectors marked by surging demand and a low risk of oversupply. The South and West have significantly outperformed the coastal gateway metros in occupancy and rent growth.
• The office market was hit hard by the pandemic. Many major employers continue to delay re-opening offices. The work-from-home effect continues to unfold with 70% of large office occupiers planning to reduce office presence in the next three years.
• There was an explosion in warehouse demand across the country as spending moved online during the pandemic. While the e-commerce revolution pre-dates the pandemic, this sudden shift accelerated the trend by 3 to 5 years.
• The retail property sector varies widely by region, submarket and retail property subtype. Secondary cities like Phoenix and Austin have outperformed gateway cities like New York and San Francisco. Suburban retail properties have tended to outperform main street retail in major cities.
• The U.S. hotel sector has had a surprisingly strong peak summer travel season. Still, with the peak leisure travel season now over and business travel still weak, industry observers expect performance to continue to soften.
• Real estate investment activity is bouncing back with $177 billion in transactions during the latest quarter, an increase of 151% year-over-year. Total return for core, institutional-quality real estate jumped 5.2%. Environmental, social, and governance (ESG) factors are coming into sharper focus. Investors have started to move back out on the risk spectrum.

“Investment has come back into the real estate market in a big way,” said Andrew Constantin, Chief Operating Officer for Phoenix American. “And fund sponsors are realizing the value of Phoenix American’s back-office support, the kind of support their investors and assets demand.”