Which Commercial Real Estate Sectors Are Growing During Inflation?

01 Dec Which Commercial Real Estate Sectors Are Growing During Inflation?

The National Association of Realtors (NAR) economist’s outlook for the rest of 2022 and into 2023 has some bright spots for commercial real estate, especially in the retail and industrial sectors. With inflation having some disruptive effects on the residential housing market, it’s a different situation for industrial and retail investment properties. According to CoStar News, “leasing of logistics, manufacturing, and warehouse properties has been hitting record highs” in the third quarter of 2022.

Interest Rate Increases and Industrial Real Estate

Historically, industrial real estate tends to continue to perform reliably during periods of high inflation as well as periods of higher interest rates. Industrial real estate is benefiting from “increased e-commerce sales and efforts by businesses to diversify supply chains,” said Matthew Walaszek, CBRE research director. In August 2022, over 83 million square feet of industrial leases were recorded, the highest total ever seen during August, typically the slowest business month of the year.

Other good news in the sector comes from Target and Walmart, which are opening large distribution centers in key markets. CBRE has been consistently projecting record demand, rent growth, and investment in warehouses and logistics centers throughout 2022, and the trend is continuing.

Retail Growth and Residential Bright Spots

Even though interest rates are increasing in response to the Federal Reserve’s efforts to raise the prime rate, population migration is helping to drive new retail centers and leasing. Residential leases are still growing in most regions, especially in high-growth areas. Move Buddha’s 2022 moving trend reports highlights the cities where people are moving, including #1: Tampa, FL. Orlando, FL is #2, along with Jacksonville, which ranks #6 on the top ten cities for residential moves.

In the changing environment, California, Illinois, and New Jersey all have more move-outs than move-ins. Move Buddha’s survey, which comes from people who hire moving companies, shows that people are moving from big cities into smaller ones as well as to areas known for good weather and natural beauty.

CBRE reports that retailers are using their space better, producing better leasing terms. Limited development in many areas is leading to increased rents and stronger retail lease performance. Combined with higher consumer spending and ongoing growth in the economy, CBRE projects increased performance in retail sectors in big markets like Atlanta, Houston, Phoenix, and South Florida, along with smaller markets like Jacksonville, Sarasota-Bradenton, and Raleigh-Durham, NC.

Be Creative and Flexible With Projects

Times are changing so fast that it could be tempting to say “interest rates are up” and decide that it will be difficult to finance any project. People are moving across the U.S., e-commerce businesses are opening real-world stores, and logistics hubs are changing the way food and products are delivered. As an NMLS licensed loan originator, you can get your clients’ projects financed by working with CCIG. Combining fast closings and simple documentation, CCIG can move your clients’ commercial, industrial, retail, or residential projects forward. Talk with us about your project and needs. With over ten years of experience, we can make deals happen.