In looking at macroeconomic patterns, all of the panelists noted that commercial real estate is a strong hedge against inflation. As inflation continues to hit 30-year highs — with Russia’s invasion of Ukraine potentially driving the consumer price index even higher, The New York Times reports — investment in strong assets is important, but one thing to keep an eye on is a property’s rent rolls.
NYU’s Savage commented, “The shorter duration the lease, the better the inflation hedge,” carrying on to note that multifamily is a strong mitigator due to the standard 12-month leases at most communities. He also noted that, depending on how office space in urban cores is reconceptualized, coworking or flexible space with typically daily or monthly agreements could also act as an effective hedge.
What to Watch?
Doyle noted that, in 2021, two-thirds of new commercial real estate financing packages were floating-rate loans, a drastic change from years past. Savage noted that variable interest structures may make a lot more sense going forward, particularly as LIBOR is phased out in favor of SOFR, but it isn’t yet clear how this may play out during times of economic stress.
In terms of investment patterns, Doyle expects 2022 to look similar to last year — at least in terms of private client investments. He commented that it seems unlikely the 1031 exchange program will change in the near term, and that investors will continually be looking to deploy capital. However, it may not be occurring in the most visible of venues: “If you’re looking for what’s available, you’re probably missing what’s actually happening,” he concluded.