Commercial Real Estate in 2023

Continue reading to learn more about how real estate trends are changing with the start of a new year. You will even hear from professionals in the real estate world about the changes they are enduring first-hand.

Rising commercial real estate trends.

With the new year, comes evolution in the realm of commercial real estate. Plans begin to change, and patterns start to enhance priority on different ideas. Areas where trends are seen prominently include but are not limited to:

Cautious lending: In the present day, it is noticeable that many people are skeptical when it comes to investing in commercial real estate.

William C. Hanson, President at NAI James E. Hanson, shares that “there is more caution than there has been in many years.” He adds, “this is likely going to have an impact on the investment and development arenas.”

The ones becoming the most cautious are the banks, as they are increasingly wary of who they are lending to and why when it comes to commercial real estate.

Jamie Weiss, President of Weiss Realty, says “interest rates are impacting asset valuations. Noticeably, the banks are reluctant to lend on office acquisitions.”

On this note, buyers who need equity for properties are facing extremely high interest rates, which it is making acquisition harder.

Employee-work experience: With the new year, employee-work experience is becoming a top priority.

Frank Recine, Executive Managing Director for Jones Lang LaSalle, lets us know that “in the commercial office space, there is a ‘Flight to Quality.’”

With that being said, this means companies are focusing on the working experience of employees. Businesses are enhancing these experiences by improving the work environment. Enhanced work environments may include amenities like food service, natural lighting, collaboration areas and covered parking among others.

What is different about commercial real estate from in and out of the pandemic era?

There are several features that have changed throughout the course of the COVID-19 pandemic. Now that we are seeing the post-pandemic stages, the commercial real estate world is undergoing some significant shifts. Let’s talk about changes seen in both the industrial and office facets of the industry:

Industrial space: In terms of industrial changes, there has been a huge demand for convenient same/next day delivery. Materials are in high-demand and are needed quicker than ever.

Hanson describes this as “an acceleration of a pre-pandemic trend.”

Because faster delivery is much needed at this point, there is also a demand for truck and van parking. The combination of these features can become very pricey.

Office space: Office spaces have seen abundant changes in their processes as well as the environment itself. Companies were forced to develop a reliance on remote work options very quickly. With this, office space occupancy has been at an all-time low, but employers are trying to get their employees back for in-person work or even hybrid work, in order to reiterate the pre-pandemic work culture.

Recine shares, “post pandemic, companies now need to balance the need to get people back to the office in order to build and maintain corporate culture to help train new employees, while maintaining flexibility, through a hybrid schedule, to accommodate the desires of employees.”

Due to the restrictions of the virtual world we had been forced to live in, employees were facing mental health detriments regarding the lack of social interaction as well as the trauma from the pandemic itself.

Interestingly, Weiss unveils that there has been “increased leasing volume with mental health and educational services.”

The professionals give their predictions.

Moving forward, many professionals feel that 2023 will bring a more accelerated feel to what is already happening.

Specifically, Hanson says “demands for industrial space should remain strong with pricing remaining high. The office sector should see consolidations, but also a post-covid return to office.”

On a similar note, some professionals also feel that full-remote work will continue in absence, while hybrid work will remain in effect.

Representing this thought, Recine shares that “not all employees will need to be in the office 5 days a week, however a hybrid model will need to be implemented in order to maintain a corporate culture.”

In terms of buying, it can be inferred that there will be some notable chances to find success.

Bridget Wilcox, Partner at G.S. Wilcox & Co., provides that “the consensus seems that there will be an increase in activity and buying opportunities in 2023 as interest rates stabilize.”