A Look at Commercial Real Estate Trends
No investment market is easy to understand, but real estate can be uniquely volatile.
It is then important to develop a strong understanding of the market before investment.
This can be challenging, especially following all the drastic changes that were seen post-COVID.
The first change worth discussing is the rise of remote work. Let’s dive in to understanding more about commercial real estate trends below.
How the Pandemic Shifted Commercial Real Estate Trends
Remote work, while certainly utilized before COVID, was not even close to as popular as it is today.
While some investors and analysts theorized people would return to office spaces entirely, this has not held true.
In San Francisco, for example, office vacancies have gone up nearly 10% from pre-pandemic to now.
Changes like these have started to drastically change the value of properties across America.
All in all, employees are spending 25-35% less time in the office now than before the pandemic.
This has made the home office an increasingly more popular concept while physical buildings are left vacant.
In some areas, landlords have even started to convert what was previously office space into residential space.
Unique solutions have to be made in the market, but regardless these commercial office spaces are diminishing.
What Sectors of Real Estate are Improving
Looking at what is in demand, three forms of real estate show themselves. Data centers, industrial real estate, and housing are all in consistent demand today.
Industrial and residential space is needed to keep up with the growing population.
Residential spaces can be made quite effectively but industrial spaces tend to take up more land than is desirable.
Data centers on the other hand are representative of the power technology has today.
There is more data being stored on the internet every day. And it needs to be held somewhere.
It seems this will be a trend that will continue for a long time.
Of course, data storage can be made more efficient, but not to the extent of not needing more storage.
To get into the real estate market as a whole – a lot of market uncertainty occurring currently, with a down-slope seemingly occurring.
Yet the U.S real estate market is generally considered quite safe with good returns.
America consistently outperforms other regions at 10.4% per year, for example.
Rising Interest Rates
Yet, again, things are trending downwards. Interest rates, for example, are rising to correct the market.
It seems that cheap investments and money within real estate is becoming harder and harder to come by.
Real estate loans are also crashing down upon investors and owners. In the next four years over $450 billion in loans are coming to term.
The real estate market is worth over $21 trillion, but billions in loans is still a massive amount.
Naturally, there is a lot of variance from industry to industry.
Earlier it was mentioned that residential real estate was popular, but more specifically multifamily rentals are popular.
It isn’t nearly as realistic as it used to be for a family to buy their own home. Many, in response, have turned to rentals.
Building apartment complexes that can fit entire families, then, is a lucrative option.
Single family rentals are also popular, and that isn’t likely to change anytime soon.
New York is a region that is seeing particularly volatile shifts.
While some real estate is being bought out, luxury brands like Gucci for example are using a lot of retail space.
New York more than any other region is seeing issues with their office spaces.
Commercial property prices as a whole have dropped 13% from the 2022 peak. This rate is even higher with a potential to climb for office spaces.
Unsurprisingly this is due in very large part to the post-pandemic high of a 47% office vacancy rate.
There has been a rebound, but some question if this will hold. It seems remote work has changed work in New York forever.
It’s changes like these, alongside other select issues, that could drop New York commercial commercial real estate up to 16%.
Conclusion
Real estate today is in a weird place. The pandemic created conditions that were never before seen, and the effects remain today.
Old reliable commercial real estate spaces have become far less reliable as others have boomed.
The need for housing and industrial space is undeniable, while the desire for data centers has similarly boomed.
Real estate has been a tricky investment for a long time. There’s a lot of room for gains and growth as the market changes.
Today though, with awareness, one can at least start to look at the right places.
Source: ChessRealtors.com