What is the Future of Commercial Real Estate?
Mid and post-pandemic data has revealed loan rates rising, banks tightening their lending belts, and a drastic change in how people are living and working. All of which has had a troublesome outlook for many property sectors in the past.
But what is happening with commercial real estate now? Is the market dying? In short, no commercial real estate is not dying. But there are some important points to consider before deciding whether to sell a development and/or buy somewhere new.
Keep reading to learn what the future of commercial real estate is and whether it’s a good idea to invest.
What is Happening With Commercial Real Estate?
Commercial real estate market is, and always has been, unlike the residential sector. Commercial real estate operates on long-term leases, therefore operating turnover is slower compared with residential real estate. Since 2020, there is a lower demand for leased spaces. Commercial real estate is incurring higher operating costs because of the demand to supply healthier safety measures within office spaces.
At the beginning of 2020, operating costs increased by at least $19.4 per square foot. This is half of the average annual rental amount for office spaces. As a result, a large number of commercial businesses reduced compensations, froze promotions, lessened work hours, and laid off some of their workforces. The closing of offices and the introduction of remote work also became the norm.
In more recent times, industrial development has increased nationally, fueling hope for commercial real estate. Larger developers are gaining interest in creating pipelines across the US. Although the commercial real estate industry has been up and down, companies are still developing new industrial projects.
What is the Future of Commercial Real Estate?
With a forecast like this, this begs the question, “What is the future of commercial real estate?” The commercial real estate market has survived previous bleak pictures and has risen like a phoenix from near ashes.
So, we can conclude that the commercial real estate market will survive, but it will look different in future. Based on our industry knowledge, we believe the commercial field will rise up through technology. At the basic level, commercial businesses must perform in a more affordable way to protect the bottom line.
For example, they will need to restructure, outsource, use data-driven systems to meet supply and demand, reduce leasing space, etc. Additionally, businesses must use a combination of robotic automation, AI (Artificial Intelligence) automation, and cloud automation.
Is Commercial Real Estate Investment a Good Idea?
Overall, investing in commercial real estate is a good idea. But it’s important to consider which type of commercial business to invest in right now and where to invest. Different industries perform well at different times, depending on what’s going on across the globe. Many commercial businesses are also more future-proofed than others.
A great example of this was seen during the 2020 pandemic. During the period of lockdowns, hotels and shopping malls were struggling. But other commercial businesses, like apartments, industrial warehouses, and self-storage facilities, were operating relatively well.
Another example can be seen per state. For example, take the states and cities that rely on tourism, like Atlanta, New York, and Florida. When tourism was low or non-existent due to a lack of socialization and travel prohibitions, commercial real estate in these states did not perform as well as usual.
However, cities that are not tourist-driven, like Cleveland, Ohio, and Salem, Oregon, were not so severely impacted and recovered faster. The commercial real estate market is not evenly divided and there will be some inconsistencies. But it’s a general rule that commercial real estate will survive in the right state and industry.
Summary
Considering the scenarios above, commercial real estate sector has permanently changed since the 2020 pandemic. Co-working spaces will likely be on the rise, but offices will certainly not be as large or prominent as they once were. In answer to the question, “What is the future of commercial real estate”, no, the market is not dying. Instead, it is just shifting.
For investors, it’s a good idea to stay in the commercial real estate market if the industry you are in is future-proofed. The more financially rewarding returns are being experienced in REITs (Real Estate Investment Trusts). REITs provide higher dividends that can be reinvested. This safe investment sector has traditionally remained strong even during hard times.
Are you considering buying your next investment property in Philadelphia or San Diego? Or looking to sell a house fast for cash? At Brotherly Love Real Estate, our expert team of realtors are here to help.
We buy houses in as little as 21 days, with no closing fees. We can buy a house with tenants and code violations, or a property in disrepair. To learn more about selling a property fast to an investor, contact us online today. Or give us a call at (215) 769-9875.