higher. Owners of large, Class A industrial properties will be able to command rent increases that outpace inflation. As it relates to financing, the open question is whether industrial properties will be granted more underwriting flexibility in a time when cap rates for commercial real estate in general are increasing. An analysis of 2,700 leases signed since 2019 by CBRE found that the flight to quality in office buildings is bifurcating rent growth trends. The study found that effective rents for Class A+/A office buildings increased by 3.8 percent in 2021 and by 6.7 percent through the second quarter of this year. Effective rents for Class B/C buildings fell by 3.4 percent in 2021 and by 1.1 percent through June 2022. From 30,000 feet, commercial real estate appears to be healthier than the overall economy. Investors betting on the future of inflation and interest rates are expecting that conditions will be close to pre-pandemic levels by 2024-2025. Are these investors whistling past the graveyard, or have fears about the future incomes and values from commercial
The yield curve inverted in mid-July, elevating concerns about recession. Source: U.S. Department of Treasury, Federal Reserve Bank.
upped its own rent growth forecast to 25 percent at the end of July.) Because of the lag between perceived demand
and construction/delivery of supply, the apparent pullback in e-commerce and fulfillment has not pushed vacancy rates
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DEVELOPING PITTSBURGH | Fall 2022
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