As we gradually come out of the pandemic, let's to take a look at the best places to invest in commercial real estate in 2022 and beyond. We'll also look at the best types of commercial real estate to buy. I'm officially bullish on real estate in 2022. I expect prices to rise by another 8%-10%.
Commercial real estate is a lagging asset class that has some of the best upside opportunity in my opinion. With the S&P 500 at record highs, more capital will naturally flow to commercial real estate.
Inflation has become one of the top issues for investors this year. If inflation does begin to accelerate, I believe owning real assets is one of the best ways to profit. Inflation not only whittles down the cost of debt, it also boosts the principal value of you real estate holdings.
Stocks have already had a great run. Single family homes and the residential housing market is really strong. A recovery in commercial real estate seems like a high probability, especially as travel picks up and people go back to work. As a result, I think it's worth focusing on hospital and office commercial real estate investments.
I've invited CrowdStreet, my favorite real estate crowdfunding platform for accredited investors to share their thoughts on what's going with commercial real estate today. CrowdStreet will also reveal the best places to invest in commercial real estate for the future.
A New Cycle Of Recovery In Commercial Real Estate
The U.S. commercial real estate (CRE) market is poised to enter a new cycle of growth. Several investment banks are forecasting GDP to rebound by 5% – 6.8% YoY in 2021. Meanwhile, the mass distribution of COVID-19 vaccines increases the anticipation of transaction velocity – nearly 40% increase in total U.S. CRE transactions for next year, according to CBRE’s mid-year 2020 report.
We sit at a pivotal moment for the commercial real estate market. We at CrowdStreet see multiple data points lining up to suggest the next upcycle is emerging right now.
Reasons For Optimism
The first reason for optimism is our supply of money. Over 20% of all dollars now in existence were created in 2020. And the trend was similar in 2021 due to so much stimulus. This much liquidity pumped into the market this fast should put upward pressure on commercial real estate prices.
The second reason for optimism is a continued low interest rate environment. The Fed provided guidance this March saying they plan to keep the Fed Funds Rate unchanged for a couple more years.
As a result, we have already begun to see the positive effects of such low interest rates on commercial real estate pricing. Cap rate compression is happening and CrowdStreet expects to see more of it in 2021.
And finally, revised economic outlooks show a more rapid recovery. Green Street Advisors now projects a full return to 2019 output levels by 2022 Goldman Sachs forecasts a 6.8% YoY rebound in GDP growth after the passing of the latest $1.9 trillion stimulus package.
The Best Places To Invest In Commercial Real Estate
In this new cycle, different metros will recover at different rates. CrowdStreet’s Investments team heavily weighed quantifiable factors like regional population and job growth.
Here are our best places to invest in commercial real estate for 2022 and beyond according to CrowdStreet. CrowdStreet is a leading real estate crowdfunding platform that focuses on 18-hour cities. I've met them a couple times before and have spent hours on their investment webinars. They are an excellent platform.
- Raleigh-Durham
- Austin
- Phoenix
- Salt Lake City
- Dallas-Fort Worth
- Nashville
- Boston
- Tampa-St. Petersburg
- Atlanta
- Boise
- Charlotte
- Washington D.C.
- Denver
- Seattle-Tacoma
- San Fransisco-Oakland
- Miami
- Indianapolis
- Orlando
- Northern New Jersey
- Inland Empire
Notes On Four Of Our Favorite Markets For 2022+
CrowdStreet's top 20 markets also possess a subjective vibe. The vibe blends multiple tangible and intangible attributes together to create attractive communities that people want to live and work in.
This mix is the magnet that pulls people to cities like Phoenix (#3), Tampa-St. Petersburg (#8), Boise (#10), and Indianapolis (#17). And where people go, investment opportunity follows. Here are some notes on each of the four cities.
| Rank | Market | Comments |
| 3 | Phoenix | Phoenix is our top market in the West. A 2020 exodus from urban CA locations has bolstered already strong underlying fundamentals. Arizona also ranked #5 for inbound moves in the Annual 2020 United Van Lines Moving Study. |
| 8 | Tampa-St. Petersburg | With strong population growth, no state income tax, a business friendly environment, affordability and a Sunbelt location, Tampa-St. Petersburg is an attractive market across nearly every asset class. |
| 10 | Boise | Boise is leading the nation in year-over-year housing appreciation, hitting a blistering 20.1% in 2020. The California-to-Idaho movement is on and Boise is poised for strong growth across every asset class. A hidden gem, Boise is not currently an institutional market but we believe it will be later this decade. |
| 17 | Indianapolis | A central location and the convergence of four major interstates make Indianapolis a key Midwest distribution hub. The presence of the state capital provides a stable base of employment and, unlike its Midwest competitor cities, it’s growing faster than the national average. Its cost of living is relatively low, which makes it attractive for residents seeking a more affordable lifestyle. |
Best Region To Invest In Commercial Real Estate: The Sunbelt
In CrowdStreet's Investor Sentiment Survey report, over 1,200 investors told CrowdStreet the Southeast was their preferred region when it came to investing opportunities.
In their 2021 Strategic Global Real Estate Outlook report, Nuveen validates this preference. It shows how COVID-19 has accelerated population migration to the Sunbelt.
Population growth was a huge factor when ranking our top 20 cities. Therefore, it’s no surprise Sunbelt cities such as Raleigh-Durham, Austin, Nashville, Atlanta, and Charlotte ranked well, particularly for multifamily investment opportunities.
The existing pipeline of new multifamily units remained strong in Q3 2020. Over 110,000 units were delivered and another 580,000 units under construction. That said, fewer than 300 new projects broke ground. This is the lowest velocity since 2012. Urban construction saw the largest pullback in 2020 at ~50% below the three year average. Meanwhile, the share of new construction for suburban multifamily development has only risen.
The New York Times reported that, “According to FlatRate Moving, the number of moves it has done has increased more than 46 percent between March 15 and August 15, compared with the same period last year. The number of those moving outside of New York City is up 50 percent.”
Jones Lang LaSalle Incorporated, a global commercial real estate services company, agrees with CrowdStreet on the Sunbelt. JLL predicts the real winners over the next 36 months will be Sunbelt and Mountain West submarkets. Much like CrowdStreet, JLL estimated those metros will outperform gateway cities.
Best Places To Invest In Commercial Real Estate By Asset Class
CrowdStreet also ranked their top markets by asset class. Their two favorite asset classes to invest in are Industrial and Hospitality.
1) Industrial Real Estate
New industrial completions are forecast to jump by 29% next year, according to CBRE Econometric Advisors. Demand is expected to keep pace with new supply, thanks in large part to the increase in e-commerce sales.
Many of CrowdStreet’s top industrial markets, including Northern New Jersey, Dallas-Fort Worth, the Inland Empire (California), and Washington D.C., are markets that are close to large populations with excellent access to highways, railway, and seaports.
CBRE agreed, pointing out that “…the Inland Empire will remain the dominant big-box industrial market. Phoenix, Las Vegas, Denver, Salt Lake City and Reno also are posting robust industrial fundamentals and development because of their proximity to burgeoning populations.” CrowdStreet also values smaller infill locations, located closer to the end user for last-mile distribution.
2) Hospitality Real Estate
The hotel sector was undeniably the hardest hit in 2020. Since rents and occupancy levels are marked to market daily, it was the first and fastest to plunge heading into the pandemic. The sector bottomed out at 22% occupancy with an 81.6% decline in RevPar (Revenue per Available Room) during the first week of April 2020. AHLA reported that annual occupancy fell to roughly 44% for the full year.
However, this also means hospitality is likely to be the distressed asset class with the strongest bounce coming out of the pandemic. It will be a long road to recovery. However, the opportunities are emerging for investors.
When ranking their top hotel markets, CrowdStreet looked for demand drivers within the leisure space such as cultural amenities, entertainment venues, tourist attractions. and one-of-a-kind destinations.
CrowdStreet believes that top leisure destinations like Orlando, FL, will bounce back faster than others. You can sign up with CrowdStreet to get e-mail notifications whenever a new deal launches.
Commercial Real Estate Is Making A Comeback
Starting in early March 2021, I've noticed traffic feels back to where it was in San Francisco pre-pandemic. The Transportation Security Administration said Friday, March 12 was its busiest screening day since March 15, 2020. Nearly 1.36 million people went through airport checkpoints in the United States on March 12, 2021. Over Easter weekend on April 4, travel is now much higher than the same date a year ago.
In 2022, traffic on the roads and at the airports are all back to pre-pandemic highs. I truly believe looking for hotel deals is what we should focus on right now. I'm looking for a hotel that is selling at a big discount in a good travel market right before the travel explosion.
To help me find these deals, I've signed up with CrowdStreet to send me e-mail notifications. Their investment team is looking for such opportunities as well.
Industrial is likely going to continue staying strong. However, it is Hospitality where there seems to be the most amount of opportunity if the capital structure is strong. I'm hopeful the economy continues to open up and strengthen.
I'd like to thank CrowdStreet again for sharing their insights. CrowdStreet has been a long-time sponsor of Financial Samurai since pre-pandemic. I expect more quality offerings focused on 18-hour cities on CrowdStreet's platform.
You can sign up here and explore all they have to offer.
Readers, what are the best places to invest in commercial real estate in 2022 and beyond? What are you favorite commercial real estate asset types? Personally, I like hospitality and single-family rental properties the most.
Fort Bend County is probably the best place to invest in when it comes to commercial real estate.
Really interesting article. A great example of buying low. What would you say is the best advice for someone looking to invest in commercial real estate? Buy actual properties or is there any fund/stock you like with an opportune commercial real portfolio?
This was a great article! I definitely have heard of the California exodus to many different states and there is no doubt that it is adding to the pressure on price across the US.
Thanks for all the hard work!
Sam, great article with Crowdstreet. On a related note, curious how you think the residential real estate situation will unfold given the extensions on eviction moratoriums. They extended again for a few months, but cannot go on indefinitely. Will that cause another bust/boom cycle and buying opportunity?
It’s a tricky situation. On the one hand, by the time the moratorium is over, the economy, the job market, and the rental market should be much stronger. On the other hand, perhaps there will be a wave of new supply that will be soaked up.
The amount of demand and cash waiting to pounce on an opportunity for surpasses the amount of supply right now. Therefore, I think at the margin, the man will quickly chase any opportunity and close any discounts relatively quickly. Therefore, we’ve got to be cashed up and looking now. We need to establish certain metrics that once a property is achieved, we will be able to bid with confidence.
The pace of opportunity has never been faster.
It’s a tricky situation. On the one hand, by the time the moratorium is over, the economy, the job market, and the rental market should be much stronger. On the other hand, perhaps there will be a wave of new supply that will be soaked up.
The amount of demand and cash waiting to pounce on an opportunity for surpasses the amount of supply right now. Therefore, I think at the margin, the man will quickly chase any opportunity and close any discounts relatively quickly. Therefore, we’ve got to be cashed up and looking now. We need to establish certain metrics that once a property is achieved, we will be able to bid with confidence.
The pace of opportunity has never been faster.
Is anyone but me worried that it still may be soon to look at commercial real estate? The vaccines have shown lower efficacy against new variants and it is possible it may not work at all on future variants. Maybe I am just a bit jaded but I can still clearly remember when they announced a 15 day lockdown to flatten the curve. That feels like it was years ago. I have personally invested in Fundrise.
It’s always good to worry before making an investment. You’ve always got to look at the bear case.
Some things to think about:
* Rates go up faster than deserved based on economic growth recovery
* New coronavirus strains that dampen the rebound
* Potential wave of foreclosures once the moratorium ends
I do not think your statement below is accurate:
Stocks have already had a great run. Now we are seeing strong demand for single family homes. **A recovery in commercial real estate seems like an inevitability.**
You can argue there are reasons why a recovery in commercial real estate may materialize over the next few years, but there is nothing suggesting that is invevitable, and surely the fact that equities have recovered and there is strong demand for single family homes does not mean commercial real estate has to recover.
Great list of top 20 places for CRE! And fascinating insights on those four cities. I’m especially intrigued by Boise. It’s certainly not a place I would imagine migrating to from California. I’d much prefer another coastal area. But that’s interesting that there’s a flow of people going from California to Boise. I’m going to look into that more. Thanks!
I moved to Boise almost 1 year ago from the Bay Area, we made the decision pre-pandemic, but it has been a wonderful decision – no regrets. While we really miss the ocean in Carmel, we found McCall, which is a mini-Lake Tahoe.
Are there any options for non-accredited investors to invest in commercial real estate?
Dear Financial Samurai,
The wife and I have been pouring through Crowdstreet and Fundrise. We anticipate investing in Crowdstreet or Fundrise via RothIRA and outside of the tax shelter to compare returns.
Crowdstreet offers generally have capital
Call provisions. I have been able to locate the fine print to determine exactly what that consists of. Could it match or exceed initial investment? To date Crowdstreet has never had a capital call. It is probably unlikely, but you never know.
Fundrise does not have capital call provisions.
I am leaning towards Fundrise because of this. Maybe we are overthinking this? Any advice?
Thank you
JH
I always invest with a 5+ time horizon with real estate crowdfunding. Therefore, I would allocate a portion of your invested capital to real estate investments you plan to lockup for 5+years. The last thing you want to do is have to try and sell real estate when you need liquidity.
There’s always a chance more capital will be required to fund an investment. I’m sure the pandemic has made this a reality for some investments over the past 12 months, as more capital was needed to fund operations.
Make sure you are diversified and have the appropriate percentage exposure. I don’t invest more than 20% of my investable assets in real estate crowdfunding.
I put together a Real Estate Crowdfunding Learning Center that address a lot of topics you should check out.
The real estate section is very helpful. We refer to it often. It’s a looootttt of information.
Thank you
I have some concerns. My father in law is in the commercial building industry and the cost of supplies to build have surged. There is a huge backlog on everything from lumber to PVC. As such, the builders can no longer profit and commercial projects are now being put on hold.
Perhaps this issue will help to bolster demand of existing structures, but then we may well end up with an artificial bubble as we may be seeing in real estate with lack of inventory.
This is all likely a short term issue, but I think we may see some volatility in the meantime.
The price rise of lumber is quite impressive, making all existing homeowners derivative lumber investors and beneficiaries.
Many of these commercial real estate investments have already been built. For new buildings, input costs will most likely put increased pressure on prices for buyers.
I think we need to look at hospitality CRE investments that have gotten beaten up, but are in need of capitalization. Hospitality should rebound tremendously. Look at Airbnb stock as a leading indicator example.
The beauty of real estate is that it lags stocks. So investors can try and take advantage of the lag now. Stocks often move so quickly, it’s best to just stay invested.
Leisure will come back, at least while government money is floating around. Leisure is less than 50% of the hotel industry though (higher for CHH and WH, much lower for HLT, H, MAR, IHG, STAY). The question is how much and fast biz travel comes back. Morgan Stanley’s recent travel manager surveys suggest a perm reduction in corp travel that would be 15% lower industry revenue vs 2019. Add in massive labor cost pressures and I think leisure falls off next year (at least the second half) after all this free money ends and people get their travel fix and I’m not as bullish on lodging in general although leisure focused resorts etc are fine but also not selling at distressed pricing either. (I’m in the industry)
Interesting points – I’m interested in office real estate – will be interesting how that works out with many people not so interested (presumably) in going back to the office and maybe telecommuting from the beach :)
“The price rise of lumber is quite impressive, making all existing homeowners derivative lumber investors and beneficiaries”
I did notice the FS post about farmland, but what about timber?
According to some (possibly biased) sources, timber outperforms (historically) the stock market, is a good hedge against inflation, and also may provide diversification.