The economy is evolving, and so is the commercial real estate (CRE) market. Learn what trends are currently influencing the market as a whole and how individual asset classes are faring. Overall, the market is strong, and now is a great time to expand your CRE portfolio.
Top Trends Affecting the Whole Commercial Real Estate Market
There are some overarching trends currently affecting the post-pandemic real estate market as a whole. Some of the most notable ones include:
Strong Operating Fundamentals
Despite some economic challenges, occupancy, rents, and absorption all remain healthy. According to Nareit, commercial real estate has continued to perform well thus far in 2022 and shows promise going forward due to solid fundamentals that reflect a healthy demand for commercial real estate across sectors.
Rising Cost of Capital
As interest rates rise, debt has become more expensive. This has presented a challenge to CRE investors, who must be a little more discriminating now in the deals they’re willing to make in order to achieve the same return on investment.
As the market evolves, opportunities are arising for conversion projects. For example, a motel that may be struggling in the current market can be converted into thriving multifamily housing with either microunits or regular apartments depending on the facility.
Trends for Individual Asset Classes
There are some notable trends taking shape within individual asset classes as well, including office, industrial, retail, hospitality, and multifamily properties.
The office real estate sector is dealing with the highest vacancy rates it’s seen in a long time, but things are beginning to stabilize. Much of the impact is due to the remote work trend, though the effects of this trend are primarily tied to concerns about what could happen rather than the reality of the current situation. Many companies are returning to the office and are placing a higher priority now on finding spaces with attractive amenities and flexibility to appeal to employees.
The pandemic sent many shoppers online. As e-commerce has flourished, so has industrial commercial real estate, especially warehouse facilities. Amazon has started to pull back its presence in the industrial market, which has had a slightly negative impact, but many other e-commerce and logistics providers have stepped in and require warehousing space.
Certain areas within the retail sector experienced serious challenges during the pandemic, particularly shopping malls and stores. On the other hand, “essential” retail (i.e. grocery) thrived. Overall, the retail sector has rebounded, albeit to varying degrees depending on geography and subtype. Some vacant retail spaces present new opportunities to convert the space. Communities benefit from having a vibrant operating property instead of a vacant one, whether that’s a walk-in clinic, indoor gym, or any other business.
The hospitality sector has struggled throughout the pandemic as both business and leisure travel virtually ceased. However, as with other negative pandemic real estate trends, this course is now reversing. Conferences and events and even international travel and business travel are returning, helping this asset class to restabilize. CBRE projects total revenue in the sector to grow by 23% in 2022.
Multifamily is remaining especially important as housing demand outpaces supply. Values have risen substantially over recent years but are starting to stabilize. Rents and occupancy rates are still strong, allowing landlords to maximize their net operating income.
Now Is the Time to Expand Your CRE Portfolio
Post-pandemic real estate trends come with some challenges. However, the CRE market is full of opportunities for motivated investors. Good quality assets are doing very well, and even distressed properties provide opportunities to make upgrades or conversions to raise the property value. Short-term market volatility and uncertainty presents opportunities for discerning CRE investors to capture value in the long-run.
Ready to expand your CRE portfolio or take on a value-add project? Verus Commercial Real Estate Finance (VCREF) offers a Short-Term Bridge Loan and an Intermediate Bridge Loan to help you finance these endeavors. Apply now!