THE VIEW FROM LIGHTBOX: OPTIMISM AND MOMENTUM WILL CONTINUE IN 2022—BUT CHALLENGES REMAIN
The beginning of a year almost always brings a round of predictions and optimism about what lies ahead—and 2022 is no exception. This time last year, optimism was high as the COVID vaccine rollout launched and the economic engines benefitted from pent-up demand after months of sheltering-in-place. Today, the market’s recovery from the pandemic continues, but challenges remain, including a new coronavirus variant about which much is unknown. While industrial and multi-housing are driving the strongest opportunities, retail, and office are still recovering. Employees are returning to offices, but in many cities, the percentage of those returning in-person remains low, leaving the short-term future of office space uncertain. Against a backdrop of expected growth, companies are actively looking to hire but challenged to find qualified candidates. Although bipartisanship in Washington, DC remains elusive, the historic federal infrastructure package funding will deliver a round of new federal investments with wide-sweeping impacts.
All these trends affect LightBox and its customers. Activity across our platforms in the environmental due diligence, valuation, lending, and investment sectors points to positive momentum moving into 2022, but uncertainty clouds the forecast. How long can the market sustain this pace? Where are the green shoots? When will the long-anticipated round of distressed assets surface? What about inflation? What risks threaten to derail recovery? What technology advances offer the most potential? LightBox insiders have a catbird seat in the commercial real estate ecosystem. Below they share their view of what we can expect to see in 2022.
Alan Agadoni, SVP C&E Solutions
The environmental due diligence sector starts the new year with an exciting development: the November 2021 publication of ASTM’s Phase I Environmental Site Assessment Standard Practice. The procedures in this standard define the important work consultants do assessing a commercial property for environmental conditions that could have an impact on an owner’s liability and the value of the property. Based on what I’m hearing from our clients, I predict we will see a relatively smooth and quick acceptance of the E1527-21 standard in 2022. The message from the ASTM Task Group to the entire community of consultants was clear: Raise the bar! Top firms will have the easiest time transitioning and will likely stand out as early adapters.
Candi Coleman, MAI, Chief Appraiser, Lender & Valuation
In 2021, we saw extremely high levels of commercial property loan volumes and transactions, and I’m anticipating more of the same for 2022. The outlook is certainly positive, but also painful. Appraisers are burning out from the heavy volume of work, and the industry is losing veterans who have opted to “sunset” with reduced workloads and retirement. Experienced appraisers simply don’t have time to train new talent, further exacerbating the appraiser bandwidth problem. More banks are outsourcing appraisal review work, which complicates matters, because it takes vendors off-line for transactions. These trends will only increase the pressure on the appraisal community to leverage technology and give more structure to training programs to avoid staffing shortages and longer turnaround times.
Dianne Crocker, Principal Analyst
Although the predicted wave of distressed asset sales didn’t materialize this year, commercial real estate deal volume rebounded to levels above where they were pre-pandemic. Looking ahead, the latest results from the LightBox Market Confidence Index survey reflect that our clients are optimistic and gearing up for a robust 2022. Despite concerns about the impact of the omicron variant, the labor shortage, and the sustainability of an overheated market, our internal barometers point to a strong start to 2022 across the environmental due diligence, valuation, lending, broker, and investor segments of the commercial real estate ecosystem. The major trends I’m watching are climate risk, technology adoption as a competitive differentiator, and infrastructure spending, all of which have strong implications for opportunities in CRE.
AJ Dunklau, GM, Location Intelligence
In 2021, we heard more about major societal challenges such as communities underserved with access to broadband, and urgent risks presented by climate change events like flooding and wildfires. The solutions to these broad problems hinge on location precision and the ability to overlay disparate data sets with accurate site information. 2022 will usher in a new era of urgency in looking at issues such as the digital divide and climate risk through the lens of spatial analysis that will enable more informed decisions about where to channel funding and solutions first.
Tina Lichens, SVP, Broker Operations
Buzz words in 2022 will include inflation, distress, and ESG. Not to mention, “When are we coming back to the office, already?” With so many factors affecting commercial real estate, any predictions of what to expect in 2022 are bound to be wrong…and right. In this time of swirling change, our most successful clients are talking about a “back to basics” focus on quality—the quality of their relationships and partnerships, the quality of their data and information, and the quality of execution. Brokers will be eyeing how to best position their business for growth and success in a unique and fast-paced investment climate.
Rich West, General Manager, Lender & Valuation
Commercial property loan volume—for both new originations and refinance—were at all-time highs in 2021. This robust lending activity fueled demand for more than 340,000 vendor reports for valuation, environmental due diligence, and property condition reports ordered through the LightBox lender platforms. In addition to the high volume of debt capital in the market, lending will also see a boost from private label CRE securitization issuance, which is forecast to reach $150 to $165 billion in 2022, a healthy jump compared to the $149 billion anticipated for 2021. Based on positive fundamentals, it’s not surprising that most of our lender-customers are gearing up for similarly-robust—or even stronger—activity in 2022.
After a year in which the world made great progress battling the coronavirus and returning to some semblance of normalcy, with businesses developing hybrid work arrangements and customers opening their wallets, the U.S. economy still faces challenges related to the pandemic—thought for the most part the news is good. In commercial real estate, LightBox insiders remain positive about the direction of the commercial real estate industry and about the potential for our clients’ business growth. We look forward to collaborating with our customers to help them overcome the challenges they face in the year ahead.