CRE Values, Yields Forecasted to Increase Next Year

Experts are doing more than wishing the commercial real estate industry a prosperous New Year—they are promising it. In a recent 2022 outlook webinar from Green Street, Michael Knott estimated that commercial real estate values and yields would increase next year. Values are expected to increase 11%, while yields will average 6%, according to his research.

On the value side, self-storage, industrial, retail and apartment values are going to be up the most. The reason for the boost in values is simple: real estate is cheap compared to the corporate bond market, and it is attracting a lot of attention and capital. The competition is driving asset pricing. According to Knott, the analysis compares real estate returns to corporate bonds, which are 22% higher that commercial real estate assets. “That is a very bullish signal for commercial real estate in our analysis,” Knott, managing director and head of US REIT research at Green Street, said in the webinar, adding that the analysis also considers REIT pricing. “The REIT signal, which we think is typically predicative of changes in private market values. So, the REIT signal is much more sanguine. When we blend those two indicators, we come up with a roughly 10% higher real estate value.”