DLA Piper's 2022 'State of the Market Survey': Bullish predictions in the face of pandemic recovery and global instability

Resurgence in commercial real estate is driving heightened optimism for the industry

NEW YORK, May 17, 2022 /PRNewswire/ -- Ongoing economic uncertainty is not hindering broader optimism about the future for commercial real estate (CRE), according to DLA Piper's 2022 Annual State of the Market Survey report. Conducted in February and March of 2022, the Survey analyzes the views of CRE experts and leaders on the pandemic recovery, economic outlook, attractiveness of investment markets and overall expectations over the next 12 months.

The 2022 Survey reflects continued optimism as the industry continues its pandemic recovery, with most respondents feeling bullish due to COVID-19 restrictions being lifted in a majority of markets globally. While general bullishness remains consistent with the 2021 report at 74 percent, more respondents in 2022 have a higher level of confidence about the real estate industry's next 12 months. The increased optimism relative to 2020 – when just 21 percent expected a bull market – is significant. A major reason for this year's positive outlook is the abundance of capital in the market, with 52 percent of respondents citing it as their primary source of confidence, up 17 percentage points from last year.

"Continued increases in optimistic sentiment from respondents speak to the resiliency of the CRE sector," says John Sullivan, US Chair and Global Co-Chair of DLA Piper's Real Estate practice, "Despite inflation concerns, rising interest rates and an ever-evolving future of in-office work, we expect most CRE sectors to strengthen over the next year."

Reimagining Office Spaces and the Traditional Workplace

As hybrid and remote work become more accepted, the reimagination of traditional office spaces has the potential to reshape thinking around CRE. More than half (55 percent) of respondents expect that a re-evaluation of office spaces and other commercial spaces will impact the sector. A vast majority (96 percent) agree that the pandemic will spur an increase in the percentage of employees who spend less than 50 percent of their time working in the office. Two-thirds (68 percent) of respondents expect it will take two or more years for office building vacancy rates to return to pre-pandemic levels.

When asked what the future of traditional office spaces might look like, 28 percent of respondents see repurposing of office spaces as an opportunity to convert existing real estate into hotels, residential spaces, life science buildings and other uses. Many feel that a full recovery is more likely for suburban office buildings (52 percent) than urban offices (34 percent) over the next 12 months.

"Although the availability of vaccines and desire for an in-office return from organizations are strong factors pulling employees back to the office, we see that a true return to form is not expected for another few years," says Sullivan. "The future of many of these spaces will depend on the ways CRE leaders can adapt to meet modern needs like reduced space needs, shorter lease terms or shared co-working and other flexible spaces."

Continuing the trend from recent surveys, logistics, warehousing and cold storage remain the most attractive, risk-adjusted investment opportunities in commercial real estate, with 66 percent of respondents ranking them highest among asset classes. Additionally, multifamily was also ranked among the most popular CRE investment opportunities in the US for 2022 with 57 percent of respondents ranking it highly – marking an eight percentage-point jump since last year.

Migration to Smaller Cities

Many US cities have experienced population shifts in the wake of COVID-19, with thousands choosing to leave traditional hubs, like New York City and Los Angeles, for smaller cities and regions such as Austin and Raleigh-Durham. The report shows a significant jump in sentiment supporting investment opportunities in these traditionally secondary markets. Notably, Austin leads the pack, with 60 percent of respondents listing it as the most attractive city for investment over the next 12 months – a 38 percentage-point jump since 2019. Nearly half of all respondents noted that the shift from densely populated city centers would impact their investment decisions.

"Lingering pandemic concerns, high prices and shifting demographics have many CRE investors turning to emerging growth markets, such as those along the Sunbelt, as targets for future investment," says Sullivan. "That is not to say that traditional hubs have been completely abandoned; major investors, as well as tech and entertainment companies, have made substantial investments in ESG-friendly buildings located in major urban areas as competition increases for the best-in-class assets in large markets."

These changes create new opportunities for the CRE industry. They disperse growth across the US, strengthening the broader economy and creating safeguards that lend themselves to a more resilient CRE landscape built to withstand future disruptions.

"The 2022 Survey underscores that the outlook for CRE remains positive and that industry leaders are increasingly bullish," says Sullivan. "The recovery from the pandemic has been nothing short of remarkable in its speed and strength and is evidence of the attractiveness and durability of commercial real estate as a global asset class."

The 2022 Survey coincides with DLA Piper's 17th Global Real Estate Summit, to be held May 17^th in Chicago. The event includes a line-up of top real estate dealmakers, investors, and innovators, including preeminent American political strategist and commentator David Axelrod and Co-Founder and Co-Chairman of The Carlyle Group, David Rubenstein.

In line with DLA Piper's commitment to serving food banks to help fight local, national and global hunger, DLA Piper will donate $25,000 in honor of the Summit speakers to support humanitarian efforts in Ukraine and the global food supply chain.

A link to the full report is here.

SOURCE DLA Piper