2022年商业地产趋势报告英

TRENDSOUTLOOKREPORT

MARCH2022

PARTNERSHIP

SERIES

2022TrendReportfor

CommercialRealEstate

UnevenRecoveryandPandemic'sLastingEffects

Authors

ZaneDoyle,PhoenixAmerican

ZaneDoyleistheVicePresidentandChiefStrategyOfficerforBusinessDevelopmentatPhoenixAmerican.BeforejoiningPhoenixAmerican,heservedasVicePresidentofClientServicesatColeCapitalandExecutiveVicePresidentofOperationsforEverestFinancialAdvisors.

NedMontenecourt,PhoenixAmerican

NedMontenecourt,CRCP,isSeniorVicePresidentandChiefRiskandComplianceOfficeratPhoenixAmerican.Previously,hewastheChiefComplianceOfficerforBlackRock’sDistributionandExecutionentities.HehastenureinfinancialservicesthroughexecutiverolesatBankofAmericaMerrillLynchandDeutscheBank.

Contributors

JosephPenner,Founder,HillStreetRealty,HSRManagement

JosephPennerhasworkedinnearlyeveryfacetoftherealestateindustry,includinglending,investmentmanagement,acquisition,ground-updevelopment,value-addedre-developmentandleasing,landdevelopment,assetmanagementandevenhands-ononsitepropertymanagement.HefoundedHillStreetRealtyandHSRManagementInc.(HSR)in2001.Togethertheyprovideafullsuiteofrealestateinvestmentandmanagementservicesfocusingonapartments,office,retail,developmentandlandentitlement.Mr.Pennerhasservedasanexecutiveformanyoftherealestateindustry’smostnoteworthyinstitutionsbackedbymanyoftheworld’slargestinstitutionalinvestorstoexecuteavarietyofrealestateinvestmentstrategies.

JamesSprow,SeniorVicePresident,Research,BlueVaultPartners

JamesSprowisanAssociateProfessorofBusiness,teachingcorporatefinance,investments,managerialaccounting,businessstatistics,internationalbusinessandentrepreneurshipinbothundergraduateandMBAprogramsforover20years.Mr.SprowwasPresidentandownerofaprecisionmachinepartsmanufacturingfirm,hasprovidedconsultingtosmallbusinesses,writtencoursesinfinanceandeconomics,andhaspublishedarticlesonfinanceandinvestments.Hehastaughtcoursesininternationalfinance,internationaleconomics,andglobalizationinSingaporeandIndonesia.Mr.SprowhasaPh.D.inFinancefromWashingtonStateUniversity.

PHOENIXAMERICAN

MARCH2022

ExecutiveSummary

TheU.S.economyandrealestatemarketsarereopeningfollowingthebiggesteconomicshockinU.S.history.AlthoughCovid-19casesaresubsidingfromrecentOmicronvariant-fueledhighs,theoutlookisfarfromcertain.

Rentalapartmentsareoneofthehottestsectorscomingoutofthepandemic,markedbysurgingdemandanda

lowriskofoversupply.Duringthepandemic,secondarycitiesintheSouthandWesthavesignificantlyoutperformedthecoastalgatewaymetrosinoccupancyandrentgrowth.Doom-and-gloompredictionsofanevictiontsunamiappeartohavebeenvastlyoverstated.

Theofficemarkethasbeenhithardbythepandemicwithadramaticslowdowninnewleasingactivityanda

torrentofnewsubleasespacecomingtomarket.Manymajoremployersplannedtoreopenofficesinthelatesummerandearlyfall;however,risingcasenumbersprompteddelays.Thework-from-homeeffectwillcontinuetounfoldas70%oflargeofficeoccupiersplantoreducetheirofficefootprintsby10%to30%inthenextthreeyears.

Thepandemicandthesuddenshutdownoflargeswathsoftheeconomyin2020causedanexplosioninwarehouse

demandacrossthecountryasspendingmovedonline.Whilethee-commercerevolutionpre-datesthepandemic,thissuddenshiftacceleratedthetrendby3to5years,virtuallyovernight.

Performanceintheretailpropertysectorvarieswidelybyregion,submarket,andretailpropertysubtype.

SecondarycitieslikePhoenixandAustinhaveoutperformedgatewaycitieslikeNewYorkandSanFrancisco.Suburbanretailpropertieshavetendedtooutperformmainstreetretailinmajorcities.Thee-commercerevolution,alongwithchangingshoppinghabitsandshiftingconsumerpreferences,areblurringthelinebetweenbrick-and-mortarretailandlogisticsrealestate.

TheU.S.hotelsectorisfreshoffasurprisinglystrongpeaksummertravelseason,markedbysignificantincreases

inoccupancyandrecord-highaveragedailyrates.Despitethestrongpeakseason,thehotelmarketisnotoutofthewoodsyet.Withthepeakleisuretravelseasonnowoverandbusinesstravelstillweak,industryobserversexpectperformancetocontinuetosoften.

Realestateinvestmentactivityisbouncingbackwith$177billionintransactionsduringthelatestquarter,an

increaseof151%year-over-year.Totalreturnforcore,institutional-qualityrealestatejumped5.2%,thelargestquarterlytotalreturnsince2005.Environmental,social,andgovernance(ESG)factorsarecomingintosharperfocusatallstagesoftheinvestmentprocess.Investorshavestartedtomovebackoutontheriskspectrumaslowinterestratesandheavycompetitioninhighlyliquidmarketssqueezecaprates.

PHOENIXAMERICAN

MARCH2022

Introduction

Asthefundadministratorfornon-tradedREITs,privateplacements,securitizationsandawidevarietyofrealestatedebtandequityfunds,PhoenixAmericanhasauniqueperspectiveontheongoingimpactoftheCovid-19pandemiconcommercialrealestate(CRE).Operatingatthecrossroadsoffundmanagers,investors,financialadvisorsanddataaggregators,ourvantagepointallowsustoobservetrendsandofferinsightsintothedynamicsofvariousCREsectors.

Inthisreport,welookatthestateofCREasthecountryemergesfromtheeffectsoftheCovid-19pandemic.NearlytwoyearsaftertheCovid-19shutdownsandoneyearafterthebeginningofthevaccinerollout,fundmanagersarelookingforsignsofapost-pandemicenvironment.Butforcommercialrealestate,thesignalsaredecidedlymixed.

With64%ofAmericansfullyvaccinated,therateofincreasecontinuestoslowevenwhilethecountryemergesfromtheunprecedentedspikeinCovid-19casesfromtheOmicronvariant.

Commercialrealestatemarketshave,inmanycases,beenirretrievablyalteredbythepandemic.Rapidlychangingconditionsledtenants,operatorsandinvestorstoadaptinwaysandatspeedsunimaginableinnormaltimes.Newsectorswereborn,stagnatingsectorsplummeted,pre-pandemictrendsaccelerated.Sectoralshiftsthatonceappearedtemporaryarenowintegratedintoanewequilibrium.Thispaperlooksatthemajorcommercialpropertysectorsandhighlightsthesignificantshiftswithineach,includingwhich

couldfadeastheeconomyreopens,andwhichonesareheretostay.Vaccinehesitancy,mandatesandquestionsaroundhowlongvaccineimmunitylastscloudthepicturefurther.TheatmosphereishavingvastlydisparateeffectsondifferentCREsectors.Here,weexaminesomeofthemajortrends.

Astheoutlineofanexitfromthepandemiccrisisstartstotakeshape,fundmanagersarelookingattherisksahead,theopportunitiesthathaveemergedandtheoverallprospectsofthevariousCREsectorsthroughtheCovid-19eraandbeyond.

Vaccinehesitancy,mandatesandquestionsaroundhowlongvaccineimmunitylastsarehavingvastlydisparateeffectsondifferentCREsectors.

TheU.S.economyandrealestatemarketsarenowreopeningfollowingthebiggesteconomicshockinU.S.history.Employmentisbouncingback,withnewhiringrampingupoverrecentmonthsandtheunemploymentratefalling.Ifthecurrentpaceofhiringkeepsup,payrolljobscouldreturntotheirpre-pandemicpeakbyJuly2022.Theoutlook,however,isfarfromcertain.Covid-19casenumbersintheU.S.aredecliningfromOmicron-drivenhighsatthetimeofthiswriting,butthepossibilityofnewvariantsaddstoongoinguncertainty.

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PHOENIXAMERICAN

MARCH2022

PayrollJobsAreBouncingBack

200MM

150MM

100MM

50MM

0MM

Source:U.S.BureauofLaborStatistics(Basedon6-monthaverageof508,000permonth)

InNovember,PresidentBidensignedabipartisanbillauthorizing$550billioninnewspendingforroads,bridges,rail,broadbandinternet,publictransit,cybersecurityandenvironmentalrestoration.

Althoughthefundswilltaketimetofindtheirwaytotheprojectsthatwillstimulatetheeconomy,thelegislationrepresentsasignificantsteptowardthelargestnewpublicinvestmentininfrastructureindecades.

$550BinNewInfrastructureProjects

EnvironmentalRestoration

ElectricVehicleChargingInfrastructure5.1%

8%

Roads,Bridges,MajorProjects

26.8%

DisasterResiliency,Cybersecurity

11.4%

PublicTransit

9.5%

Passenger,FreightRail

16.1%

ModernizingWaterInfrastructure

13.4%

BroadbandInfrastructure15.8%

Source:Reuters

MultifamilyProductionIndex

Q12003

Q42003

Q32004

Q22005

Q12006

Q42006

Q32007

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Q32010

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Q12012

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Q22020

Q12021

PHOENIXAMERICAN

MARCH2022

Multifamily

Rentalapartmentsareoneofthehottestsectorscomingoutofthepandemic,markedbysurgingdemandandalowriskofoversupply.

Apartmentmarketanalystsreportthestrongestdemandin30-plusyears.RealPagenotesthatnetdemandformarket-rateapartmentsincreasedby673,000in2021,whichexceedsthepreviouspeakfrom2000by66%.Thissenttheoccupancyratetoanall-timehighof97.5%.Notsurprisingly,rentgrowthhasalsoreachednewheights–effectiveaskingrentsgrew14.4%in2021,surpassingthepreviousrecordfrom2000-2001,accordingtoRealPage.

Whilenewsupplymaybeelevatedinsomeregions,nationalmultifamilyhousingproductionhasnotadjustedupwardsinresponsetoskyrocketingrents.Lookingahead,anincreaseinnewsupplyappearsunlikely.AccordingtotheNationalAssociationofHomeBuilders,highbuildingmaterialprices,productionbottlenecksandlaborshortagesareconstrainingthesupplyresponsethatmightotherwisehavehappenedinresponsetosurgingdemandandacceleratingrentgrowth.Inthevastmajorityofregionsandsubmarkets,multifamilyhousingisundersupplied.

RentalApartmentsContinuouslyUndersupplied

75

50

25

0

Source:NationalAssociationofHomeBuilders

CommercialRealEstatein2022©2022PhoenixAmericanFinancialServices,Inc.

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PHOENIXAMERICAN

MARCH2022

Duringthepandemic,high-costgatewaycitieswithdenseurbancoressawanincreasedoutflowofhouseholds.ThisincludesSanFrancisco,NewYork,LosAngelesandWashington,D.C.Conversely,migrationflowsacceleratedtowardlower-costsecondarycitiesintheSouthandWest,includingAustin,Charlotte,Dallas,HoustonandAtlanta.Notsurprisingly,secondarycitiesoftheSouthandWesthavesignificantlyoutperformedthecoastalgatewaymetrosinoccupancyandrentgrowthsincethebeginningofthepandemic.

OnesignificantunknownintheapartmentmarketistheeffectoftheendoftheFederalEvictionMoratorium,whichwasstruckdownbytheSupremeCourtinAugust2021.TheCenteronBudgetPolicyreported11millionAmericanswerebehindonrentpaymentsandriskedevictiononcethemoratoriumended,whiletheUrbanInstitutereported4millionfacingpossibleeviction.

Doom-and-gloompredictionsofanevictiontsunamiappeartohavebeenvastlyoverstated.

Therealityseemslikelyfarlessdire.AsJayParsonsofRealPagepointsout,doom-and-gloompredictionsofanevictiontsunamiappeartohavebeenvastlyoverstated,withmostanalysesbasedonanexperimentaldatasetfromtheUSCensusBureau'sHouseholdPulseSurvey,whichhasaverysmallsamplesizeandsevereproblemswithdatacollectionmethods.

MoreaccuratedataonactualrentcollectionsfromtheNationalMulti-HousingCouncilshowthat93.1%ofprofessionally-managedapartmentunitspaidrentontimeinNovember2021,comparablewithNovember

RentalCollectionsRunninginMid-90%Range

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Source:NationalMultiHousingCouncil

PHOENIXAMERICAN

MARCH2022

Broadlyspeaking,rentcollectionratesintheapartmentmarketcontinuetoberobust.

2019'srentcollectionrateof95.2%.Whiletheremaybepocketsoftheapartmentmarketwhererentcollectionshavedeclinedsignificantly,broadlyspeaking,rentcollectionratesintheapartmentmarketcontinuetoberobust.

StudentHousingHeatsUp

WhiletheCovid-19pandemichitthestudenthousingsectorparticularlyhard,studentsarereturningtocampusafterayearofmostlyremotelearning,sendingstudenthousingdemandsurgingupward.Studenthousingpre-leaseactivityforFall2022isofftoastrongstart,as31.5%ofallbedsacross175universitiesarealreadyaccountedfor,asofDecember2021,accordingtoRealPage.ThisisnearlyequaltotheFall2020pre-leasingleveltwoyearsagoof31.7%.

Rentgrowthispickingupaccordingly.AccordingtoRealPage,annualeffectiverentchangereached3.1%,easilyexceedingthe0.2%growthinDecember2020anddoubletheDecember2019andDecember2018ratesofabout1.5%annualeffectiverentgrowth.

SeniorHousingRecoveringAtAMeasuredPace

Thepandemiccausedbothawaveofmove-outsandaslowdowninmove-ins,leadingtoasharpreductioninoveralloccupanciesamongallthreesubsectorsoftheseniorhousingmarket–independentliving,assistedlivingandnursingcare.

However,asthelatestavailabledatashow,occupanciesarestartingtorecover.Overallseniorhousingoccupancyincreased1.4%inQ32021to80.1%and1%inQ42021to81%.Theindependentlivingoccupancyrateincreasedto83.6%,theassistedlivingoccupancyrateincreasedtomorethan78%andthenursingcareoccupancyrateincreasedto77.2%.

Intermsofinvestorinterestinthesector,CBRE’sSeniorHousing&CareInvestorSurveyindicatesthattheassistedlivingsubsectorgarneredthemostinvestorinterest(33%),followedbyindependentliving(22%)andactiveadult(15%).

Theassistedlivingsubsectorgarneredthemostinvestorinterest.

PHOENIXAMERICAN

MARCH2022

Office

Theofficemarkethasbeenhithardbythepandemicfromadramaticslowdowninnewleasingactivityandatorrentofnewsubleasespacecomingtomarket.Newdemandwaseffectivelyfrozenthroughoutthecountrythroughmuchof2020.

AsofQ42021,theofficemarketisbeginningtothaw.Leasingvelocityimprovedby9.4%withthefull-yearleasingvolume14.6%,placingitabove2020levels.However,landlordconcessionsrosetorecordlevelsinmanymarkets,accordingtoCBRE.Thequarterwasthefirstsincethestartofthepandemictoexperiencepositivenetabsorption.Theoverallvacancyratestoodat16.7%,witha22%availabilityrateacrossmajorcities.

Alleyesareonthefutureofofficework.Willthegreatmajorityofworkersreturntotheofficeoncethepandemicisbehindus?Orhastraditionalofficework

Officeworkersnowexpectanunprecedentedlevelofflexibilityoverhow,whereandwhentheywork.Andemployersareresponding.

beenpermanentlydecoupledfromactualofficespace?Theanswerhasmonumentalimplicationsfortheofficespaceinthecountry.

Onethingdoesappearcertain—officeworkersnowexpectanunprecedentedlevelofflexibilityoverhow,whereandwhentheywork.Andemployersareresponding:AGartnersurveysuggests80%ofcompanyleadsplantoallowremoteworkafterthepandemic.

LargeEmployersPlantoDownsizeOfficeFootprint

SignificantlySmaller(>30%)

ModeratelySmaller(>10-30%)

TheSame

ModeratelyLarger(>10-30%)

SignificantlyLarger(>30%)

0

%25%50%75%

Source:CBRE

FlexibleofficespaceoptionsSharedmeetingspace

Indoorairquality

Connectedtech/buildingappsSustainablebuildingdesignTouchlesstechnology

Onsitecaféfood&beveragePublictransportationaccess

PHOENIXAMERICAN

MARCH2022

Themagnitudeofthework-from-homeeffectmaynotbefullyunderstoodbyanyoneyet.However,somestatisticsshedlightonthetopic.AccordingtoasurveybyCBRE,70%oflargeofficeoccupiersplantoreducetheirofficefootprintsby10%to30%inthenextthreeyears,withanother10%ofoccupiersplanningtoreducetheirsquarefootageevenmore.

Withnewhigh-frequencyofficeoccupancydata,officere-openingscannowbechartedvirtuallyinrealtime.AccordingtoKastleSystems,actualofficeactivity,measuredbyswipesofsecurityaccesscards,plummetedinMarchandAprilof2020.However,officeactivityhasbeenincreasinginfitsandstartssincethen,particularlysinceearly2021asvaccinesbecamewidelyavailable.

Officemarketobservershadexpectedthesemeasuresofactivitytoincreaseinthefallandwinterasmanyemployersfollowedthroughontheirofficereopeningplans.However,Covid-19caseshavespikedrecently;theseven-dayaveragefornewcasesincreasedfrom120,000perdayinearlyDecemberto605,000perdayinearlyJanuary2022.

Uncertaintysurroundingvariantsandrisingcasenumbershavealsopromptedmajoremployerstorethinktheirofficereopeningplans.Manyhadplannedtoreopeninthelatesummerorearlyfall.CompanieslikeAmazon,Apple,Facebook,Lyft,Dell,WellsFargo,andCNN–tonamejustafew–havepushedbacktheirofficegrandreopendatesfurtherintothefutureoutofcaution.

Uncertaintysurroundingvariantsandrisingcasenumbershavealsopromptedmajoremployerstorethinktheirofficereopeningplans.

Measuresofcurrentofficeactivityhavebeenimpactedaccordingly.Amongthe10largestU.S.cities,theaverageofficeoccupancyhadreachedarecenthighof39.8%duringtheweekofDecember8.However,asrisingcasecountscoincidedwiththeholidayseason,officeoccupancyfellsharplyinthefinalweekof2021to17.5%,accordingtoKastleSystems.Bycomparison,KastleSystemsrecordedofficeoccupancyinthe95-

100%rangeinearlyMarch2020,beforethepandemicshutdownsandofficeclosures.

Astheofficelandscaperemainsinastateofflux,investorsareadjustingtothenewrealities.AccordingtoCBRE,therehasbeenarenewedbifurcationininvestorappetiteforofficespace.High-quality,fullyamenitizedassetswithdurable,long-termincomestreams,creditworthytenants,andeffectivetenantretentionstrategiesareevenmoreattractivetoinvestorsinthisenvironment.Asaresult,theirvalueshaveseenrelativelylittledilution.Bycontrast,there’sbeenadropoffininterestforassetswithshorterincomestreamsandthosethatrequiremoreintensiveassetmanagementandcapitalimprovements.

NewPrioritiesforOfficeOccupiers

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Source:TheFutureofOfficeSurvey,CBRE

*estimated

E-commerceSalesas%ofTotalRetailSales

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PHOENIXAMERICAN

MARCH2022

Industrial&E-commerce

Ifthepandemiccreatedwinnersandlosersincommercialrealestate,thewinnerissurelytheindustrialandlogisticssector.Asallin-personretailshoppingcametoagrindinghaltinMarch2020,spendingmovedonlineatlevelsneverseenbefore.

Theresultwasanexplosioninwarehousedemandacrossthecountryfromthee-commerceindustry,neareverysignificantpopulationcenter.Nearlytwoyearslater,theindustrialmarketisstillasstrongasever,withtheavailabilityratetouching3.2%inQ42021,arecordlowaccordingtoCBRE,andrentsreachingnewhighs.

Thee-commercerevolutionpre-datesthepandemic;thesuddenshiftfromin-persontoonlineshopping,

however,acceleratedthetrendby3to5years–virtuallyovernight.Covid-19precipitatedseveralothermajorshiftsintheeconomyandglobalsupplychainsthathavebenefitedtheindustrialmarketaswell,includinggreaterinventoryrequirements,supplychaindiversificationandaboominconsumerspending.

Eachoftheseisexpectedtodriveadditional,broad-baseddemandforindustrialandlogisticsrealestate–bothbulkdistributioncentersinprimarydistributionmarketsaswellassmaller-scaleurbandistributioncentersforlast-miledeliverycapabilities.CBREestimatesanadditional1.5billionsquarefeetofe-commercelogisticsspacewillbeneededgloballytohandlenewdemandoverthenextfiveyears.

TheE-commerceRevolution

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TotalBookingsvsSameWeek2019

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MARCH2022

Retail

TheU.S.consumersectorisbooming.Employmentisreboundingswiftlyfrompandemiclows,wagesaregrowing,andretailsalesincreased16.1%year-over-yearthroughNovember2021.

Furthermore,thelatestspikeinretailsalesisfueledbyspendinginmorediscretionarysectorslikeclothing,electronicsandfurniture,ratherthanstaplegoodssuchasgroceries,indicatingconsumersarelooseningtheirspendinghabitsevenmorethantheheadlinefiguresmightsuggest.Theretailpropertysector,however,varieswidelybyregion,sub-marketandretailpropertysubtype.

Overall,theavailabilityratefell0.3percentagepointsto6.2%,accordingtoCBRE,assecondarycitieslikePhoenixandAustinoutperformedgatewaycitieslikeNewYorkandSanFrancisco.Furthermore,CBREnotesthatsuburbanretailpropertieshavetendedtooutperformhighstreetretailinmajorcities.

Throughyear-end2021,concernsaboutrisingCovid-19casecountsthreatenedtodelaytheongoingrecoveryoftheretailsector.AccordingtoOpenTable,restaurantbookingsacrossU.S.citiessoftenedthroughyear-end,coincidingwithapickupinconfirmedcases.

PotentialStallOutforRestaurantIndustry

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Source:OpenTableStateofTheIndustry

CommercialRealEstatein2022©2022PhoenixAmericanFinancialServices,Inc.

PHOENIXAMERICAN

MARCH2022

Thee-commercerevolution,alongwithchangingshoppinghabitsandshifting