As we move into the second half of 2023, the commercial real estate market is experiencing significant changes. Supply and demand challenges, raising interest rates and more have profoundly impacted the industry, leaving many investors and businesses wondering what lies ahead. Let’s explore the latest commercial real estate trends to gain a better understanding of what people can expect for the rest of the year.
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2023 Commercial Real Estate Trends
Asset Class Breakdown
Depending upon what asset class you are working with, your success in the market could vary greatly since each one has its own unique challenges. Let’s compare which asset classes are succeeding or struggling:
What’s Working
Multifamily Housing: According to Moody’s Analytics, multifamily housing has continued to fair well over the last couple of years, with developers continuing to add to the ever-growing supply. Where the national vacancy rate was 4.5% at the end of 2022, the median vacancy rate was 3.9% in April 2023.
Industrial and Retail: Along with apartments, National Association of Realtors® Chief Economist Lawrence Yun pointed to industrial and retail class assets as keeping the commercial real estate industry relatively stable. Between industrial and retail real estate, 361 million square feet and 64 million square feet of net positive absorptions, respectively, were added between May 2022-2023.
What’s Not
Office Space: The COVID-19 pandemic created a wave of change for how businesses approach work that still has an impact on the commercial real estate market today. With remote and hybrid office work remaining an increasingly popular option, the demand for office space has dwindled. According to JPMorgan, although A-class properties with leases of 10 years or more are performing well, B- and C-class offices with shorter leases could struggle.
Taking in these considerations along with the impact of the increasing interest rates from the government, Yun estimates that the commercial real estate transaction volume will overall decline in 2023 by 27%.
One of the commercial real estate trends we’re seeing in 2023 is the reduced use of office space.
Other Real Estate Trends to Follow
Life Science on the Rise
Life science real estate, including laboratory and research facilities, is an emerging asset class that is gaining interest from investors. Stemming from the pandemic’s uncovered need for proactive medicine development, this type of real estate is expected to be prominent throughout 2023 as the demand for medical research facilities and specialized properties grows.
Keep Technology Top of Mind
In his article for Forbes, 15-year commercial real estate veteran Ryan McKenzie slated the impact of technology as one of the top 2023 real estate trends to follow. We’re beginning to see a significant shift towards the use of advanced technology within both residential and commercial real estate. Virtual property tours are becoming more popular as they allow investors and tenants to view properties remotely and the use of blockchain enables secure, transparent, and efficient transactions.
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Make Commercial Real Estate Trends Work for You
While there are challenges and uncertainties within the commercial real estate space, there are also unique opportunities and trends worth capitalizing on. To navigate the market successfully, investors and other stakeholders should stay informed about these real estate trends and remain open to changing circumstances. By doing so, they position themselves for success in the dynamic and evolving world of commercial real estate. Ready to learn more? Gain greater confidence by learning how to use commercial reals estate as an inflation hedge.
