COMMERCIAL REAL ESTATE TRENDS 2023
what is a commercial Real estate?
Commercial real estate is a non-residential immovable property used for business or land that can generate income. Different countries define according to their points but the core offering remains the same. Shopping malls, hotels, hospitals, office spaces, and land that can be converted for such use are also categorized as commercial real estate.
COMMERCIAL REAL ESTATE OVERVIEW
Here we are taking an overview of commercial real estate about its types and classifications. so commercial real estate is broadly classified into these types.
- Multi-family real estate
Multi-family real estate is housing with multiple units, preserved within one physical structure. They exist in the space between commercial and residential real estate. If owners can look at them to generate income and not primarily to reside in them then are considered commercial property.
They can be urban or suburban as far as location goes and can be mid-rise or high-rise. Such a property is understood to be a safe investment.
2. Office space
Office buildings can also and are usually classified into multiple formats. Office leases are typically long-term since management does not want to shift its workforce around frequently. Functional facilities that are professionally managed but are not up to premium properties are another category of office real estate. They are usually not located in the metro or more urban areas. certain office space requires extensive renovations or are found at undesirable locations. They are at the bottom rung of commercial office buildings.
- Retail space
Retail space is obviously considered for a wide range of commercial purposes. From neighborhood stores to large malls and entertainment places, retail space is more expensive than offices because they are high in traffic areas. Retail leases are also long-term and usually house some anchor tenants, which offer a bigger brand pull. Such brands help in getting more foot traffic.
- Industrial real estate
Industrial real estate constitutes warehouses, manufacturing hubs, distribution centers, etc., and is usually located outside the periphery of urban or residential areas. Logistic hubs and special economic zones make up clusters of such commercial real estate.
CURRENT COMMERCIAL REAL ESTATE MARKET
The Commercial Real Estate Market is segmented by Type (Offices, Retail, Industrial and Logistics, Multi-family, and Hospitality) and by Geography (Asia-Pacific, North America, Europe, Middle-East and Africa, and Latin America). The report offers market size and forecasts for the commercial real estate market in value (USD billion).
The size of the commercial real estate market is USD 13.5 trillion in the current year and is anticipated to register a CAGR of over 4% during the forecast period. China and Canada experienced growth in office space absorption, whereas Europe and the US saw declined rate. In addition, Asia-Pacific is leading in retail sales and logistics warehouse absorption in the global market.
Office Markets to Witness Increased Growth
The office market was strongly hit by the pandemic globally. but now the market is in recovering fast. Furthermore, increase in investments in the sector are boosting the economic recovery in the market.
office occupancy experienced robust growth of more than 80% in almost 390 metro cities worldwide. Moreover, 30 million sq ft (MSF) of office space Meanwhile, the rental growth of the sector is in the slow recovery phase, and EMEA experienced more than 61%, followed by class-B and class-C offices with 32% and 7%, respectively.
Asia-Pacific (APAC) region is due to population growth leading in the office market, GDP growth, middle-class consumers, and the working-age population leveraging office demand. Also, the APAC region contributes more than 50% of office construction in the global market.
The retail sector is expected to grow significantly.
The sector stood resilient, as e-commerce sales during the pandemic accounted for only 14% of overall retail sales. Moreover, developers are focusing on different strategies to meet consumer demand and adapt to the changing retail environment.
Such as remodeling shopping centers for multiple purposes, customizing tenant mix, and developing new lease models to attract the latest business models.
In addition, to meet consumer demand, some retailers are expanding their business through omnichannel strategies, such as click-and-collect, curbside pickup, and ship-from-store, by adopting new technologies.
Furthermore, retail sales increased in the Asia-Pacific region, followed by the US and Europe. Also, retail sales experienced growth in different segments such as in-store retail, grocery stores, apparel, departmental stores, restaurants, and bars
COMMERCIAL REAL ESTATE MARKET ANALYSIS
COMMERCIAL REAL ESTATE MARKET ANALYSIS
A real estate market analysis is a tool that helps us to gather information to know, for example, if we should invest in a property or to determine the rental potential of a city or district. In fact, it would be crazy to buy a property without having information to support a purchase of this size. Market research is the major step that every investor has to take before jumping into the market. The objective is to be sure that the project is viable and that it fits in the existing market. Not all real estate investors are patient enough to competently conduct a real estate market analysis. If you want your real estate business to stand out from the competition, you need to do some research.
Why do a real estate market analysis?
There are several reasons to do this type of study, the main one is that this type of knowledge helps you to invest and buy safely. Other reasons also include:
whether you should invest in one city instead of another. To identify which elements hinder investment in certain places.
To know demographic aspects to determine the evolution of the area where you want to invest. To have information about investment projects in certain areas and to know if in the future they will have a development or not will increase the value of the properties.
By knowing the housing market prices, you will always have the opportunity to negotiate a lower price and avoid overpaying the market value of a property. some market analyses you really know are:
Studying the demand
when you study the demand the objective of knowing the customers in the market and evaluating it becomes easy. if there is potential to be exploited. Here is an example of a list of questions to ask when considering demand in a real estate market survey:
How many customers are there in this market? How is this number changing (increasing, decreasing, stagnant)? which type of these real estate customers are> Where are they located? What is the consumption rate of the customers? How do they behave?
What are the consumer’s choice criteria? What is their budget? What are the important points to trigger a purchase?
The environmental and legal study
The environmental analysis study consists of analyzing the factors that may influence the market, such as applicable regulations, technological developments, or any other element that may have an influence.
Here is an example of a list of questions to ask when studying the environment:
What innovations are affecting the market? What is the regulatory framework governing the market? Are there laws specific to this market? What are the trends in the evolution of legislation? Are there professional groups or other actors acting or influencing the market?
Data collection process
The data collection process is one of the most important steps, as it allows you to collect information that will help to determine if the project is viable and your investment is secure. QuestionPro allows you to easily conduct your field research to get the data you need.
It doesn’t matter if you don’t have Internet, our Offline App allows you to conduct surveys through mobile devices and download the information once you have a wifi connection. Conduct real estate surveys and start getting the information you need to secure your investment in the real estate market.
COMMERCIAL REAL ESTATE OUTLOOK 2023
The 2023 commercial real estate outlook indicates there may be challenges ahead. Retail is at a crossroads, and the future of office space is unclear. Plus, supply chain issues persist, and inflation is near 40-year highs, prompting the Fed to steadily increase interest rates. But there are a few bright spots in the commercial real estate forecast. Multifamily properties continue to perform well, and the hot streak for industrial properties remains.
After its recent record-breaking year in 2021, the multifamily sector has started to slow down in the second quarter of 2022. Demand remains solid, but net absorption dropped by 75 percentage points in 2022 compared to 2021.
As a result, rent growth decelerated, and the vacancy rate increased in 2022. Due to rising borrowing costs, people may need to rent for a longer period keeping strong demand for apartment buildings.
While the U.S. may skirt the recession, the multifamily sector will likely regain momentum later this year and perform better than pre-pandemic.
The future of office space is ambiguous. COVID-19 has already disrupted the “traditional office” work environment. Hybrid work is now a reality for many people, and this trend only goes one way, just like e-commerce changed the “traditional retail” sector.
Thus, 2023 will be another challenging year for the office sector as this sector will continue to change to improve the occupant experience and attract more employees to return to the office. But, this may be even more difficult with older office spaces lacking modern amenities. Vacancy rates may drop even further for these office spaces.
Thanks to the rise of e-commerce during the pandemic, industrial real estate outperformed in the last couple of years. Big online retailers needed warehouses to store their products, boosting the demand for industrial spaces.
Even though demand for industrial space cooled off in 2022, the industrial sector will continue to be one of the bright spots of commercial real estate in 2023. Despite the slowdown, vacancy rates will remain low, and rent growth will increase by a double-digit number due to low supply in the industrial sector.
The retail sector is motivated to remain strong and perform better than last levels With inflation moving down and interest rates stabilizing later this year, consumer spending power will be back this year. Specifically, growth in the brick-and-mortar stores will be driven mainly by smaller shops such as neighborhood centers.
The trend is clear. Due to remote-work policies, neighborhood stores are on the rise, and this trend will continue this year. Consumers like to shop locally as these neighborhood stores offer convenience and personal interaction.
Hotel revenue dipped in 2020 due to the COVID-19 travel restrictions and self-quarantine orders, but it fully recovered in 2022. In fact, the revenue per available room (RevPAR) is 10 percent higher than the pre-pandemic level. After two years of social distancing and working from home, Americans travel again. With business and leisure time increasing, the demand for hospitality spaces will continue to grow in 2023. The year is still young.
Inflation, interest rates, supply chain, and geopolitical events are the main factors determining how commercial real estate will perform in the following months. The National Association of REALTORS® will keep you informed monthly about the developments in commercial real estate.
COMMERCIAL REAL ESTATE TRENDS 2023
The commercial real estate market is always in flux with new trends and developments emerging all the time. As we look ahead to 2023, there are several key trends we’ve identified that we feel are poised to shape the market this year and beyond.
Our first major trend to keep an eye on that Is the commercial real estate market is the rise of e-commerce.
With more and more consumers turning to the internet for their shopping needs, especially post-pandemic, the demand for warehouse and distribution space is going to continue to increase. This trend is already well underway with e-commerce giants like Amazon snapping up large warehouses and distribution centers around the country.
Flex space, which is a blend of office and warehouse or distribution, will also see further demand from smaller businesses since there hasn’t been enough of this product developed in the last economic cycle.
2:Adaptable Office Space and workings
The second trend that we expect to further have an impact on the commercial real estate market in 2023 is the continued popularity of coworking spaces and the demand for adaptable office space. it must be applicable
that working spaces offer a flexible and cost-effective alternative to traditional office space and they are becoming increasingly popular among small businesses, entrepreneurs, and freelancers. While many think office real estate is dead, that couldn’t be further from the truth. It is simply changing to fit our new workforce demands much as retail has shifted in the last decade.
This trend is likely to grow and expand as more and more people opt for the freedom and flexibility of self-employment or aim to keep their business costs down while working in an amenity-rich, entrepreneurial environment.
3:Healthcare And Senior
The healthcare sector is another aspect of the commercial real estate market that we anticipate to see strong growth in this year. With an aging Boomer population and an increasing focus on preventative care, the demand for medical office space, as well as senior and assisted living, is on the rise.
This trend is likely to be even more significant in urban areas, where a large percentage of the population is concentrated, and within the neighborhoods where this aging population already lives since they often prefer to age in place instead of relocating somewhere new.
4:Stay Away From Single-Use Property
Somewhat in line with urbanization, mixed-use development is also on the rise.
Mixed-use developments combine residential and commercial space into a single development, which is a far better way to achieve the highest and best use for any property.
They are becoming increasingly popular as a way to create more vibrant and livable urban environments and they can also have a positive impact on affordability for both businesses and residents, as well as lessen the strain on local infrastructure and traffic. Many urban environments, especially those without a substantial public transit system will begin to develop more into a concentrated “node system” instead of the traditional hub and spoke city sprawl that we are accustomed to.
As traffic and drive times increase, people want to spend more time within their neighborhoods where they can work, live, and play without having to spend time commuting.
5:Sustainability And ESG
Sustainability has been trending for years, especially since the rise of ESG (environmental, social, and governance) around 2020. As more and more businesses and organizations prioritize environmental concerns, the demand for sustainable commercial properties is only going to increase.
There are many family offices, private equity groups, and hedge funds that are only directing funds towards projects that check these boxes. Urban areas, where the environmental impact of commercial development is more pronounced, will see the majority of these trends but even farmland, whose owners are often looking to decrease its costs and environmental impact, is participating by making their water and other outputs more efficient.