1. Demand for Apartment Buildings in Major Urban Areas Will Increase
The implementation of covid vaccines throughout the Bay Area in the late spring and summer of 2021 has driven a reversal of higher apartment vacancy rates. In 2022, we expect multifamily rents to resume their average annual pre-pandemic growth rate in tech-focused areas of 2.8%. Data gathered by Realtor.com indicate that San Francisco rents hit $2,895 in mid-August 2021, which was a yearly increase of nearly 1.5%. That’s a drastic turnaround considering that in March 2021 San Francisco rents were 12.6% under the previous year’s totals. This growth appears to be here to stay in the Bay Area—particularly in the East Bay—as experts predict the locale is well on its way from fully rebounding from the temporary lag associated with the pandemic.
2. Rental Income from Residential Investment Properties Will Stabilize
Throughout 2020 and early 2021, Portland and other Pacific Northwest markets benefited as Bay Area based employees migrated in response to the pandemic and advent of remote working across nearly every industry sector. Since then, however, migration has subsided —and the local job market has recovered, increasing nearly 7% in the 3rd quarter of 2021 vs. the same period in 2020. Another factor driving higher rents is that entry-level homes in San Francisco remain some of the priciest in the nation. There is plenty of demand for rental units which explains the fact that vacancy levels are low—mainly due to the fact that around 56% of the Bay Area residential population opts to rent instead of buy.
3. Remote Working is Here to Stay
Twitter was one of the first major corporations to offer large-scale telecommute options for its employees. At the beginning of May 2020, the organization stated that employees who were able to work on a remote basis could do so indefinitely. Facebook along with countless other leading businesses soon followed suit. That trend hasn’t lost any steam. One thing is certain: the future of work will not be tied to physical office buildings.
4. Retail Market Will Rebound—In Specific Sectors
Although the surge of e-commerce ushered in by the pandemic has severely impacted brick-and-mortar retail properties, the lasting adverse impact many market experts projected may have been premature. Customers still want to dine in restaurants, get pedicures and conduct other in-person business transactions for goods and services where the human element remains irreplaceable by technology and online shopping. Still, investors should note that certain retail commercial properties like malls and outlets will continue to lag as these are the most negatively affected as buyers increasingly turn to the internet to do their shopping from once-popular in-person retailing suppliers.
5. Interest Rates Will Rise
Despite the recent surge in cases driven by Omicron, we believe the Federal Reserve won’t shift its policy in the coming months. Inflation will continue to exert upward pressure on historically low mortgage interest rates and the majority of economists are in agreement that the Fed will increase interest rates 75 basis points over the course of 2022. With the increase expected to be a gradual one over the course of the next 12 months, real estate investors should act early in 2022 to lock in still-low rates.
Get Started Today
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