10 Trends In Commercial Real Estate To Watch In 2023

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In the year 2022, less established property types became investment hotspots, including cold storage, computer centers, and biosciences. But when the summer ended, the sector began to cool off significantly.

In addition, long-term real estate visibility has grown less clear due to market uncertainty, although it is still possible to predict how some current sector trends will develop.

These top ten trends will influence the commercial real estate market in 2023.

10 Trends That Will Shape The Commercial Real Estate Sector In 2023

Real Estate Searches Go Digital

The pandemic accelerated digitization in all industries. And the market for commercial real estate is similar. Due to the pandemic and the competitive real estate market in 2020, several purchasers made their purchases without ever stepping inside.

Due to virtual capabilities, many people were able to virtually tour properties, including:

  • Drone Videos
  • 3d Tours
  • Online Staging

Online searches for “virtual staging,” which were increasing before the pandemic, skyrocketed in 2020, yet it is expected that the demand will decrease slightly after the outbreak.

Commercial property sellers could explore properties, contact agents, and learn about mortgage possibilities during the pandemic. Not just the commercial real estate tour is going digital in today’s real estate market. A mortgage can now be obtained online as well.

In addition, technology is being used by millennials, who are well known for their dependency on social media, to learn more about their new surroundings.  

A Rise In Real Estate Prices

Prices would ultimately increase due to rising demand and the market shifting toward being a seller’s market. Commercial property buyers are conscious of price increases.

As a result, some buyers are prepared to shell out significantly more money than the asking price to make the transaction.

With Leasing Activity Declining, Trends Are Shifting Toward Shorter, Smaller Lease Agreements In Suburbs.

While the worst pandemic may be behind us, businesses are cautious when making long-term choices like leasing. These numbers are evidence of a fundamental shift in a society that increasingly values hybrid work.

Businesses that previously saw office space as essential now have to decide which model they’ll use going forward, whether they require the same area, and other factors.

Shorter leases, or those lasting less than two years, have become more popular in commercial real estate due to this uncertainty, giving businesses more options when reserving space.

Smaller spaces were also typically preferred in leases. As a result, suburban workplaces have become a more dependable target than central business areas, where this trend was initially most apparent.

Continual Increase In Office Leasing

Due to the pandemic and the rise in work-from-home arrangements, office leasing may not have been inactive over the past two years. But little by little, things are altering.

Companies are reverting to offline working and calling staff back as the global economy is regaining trend and the world is recovering from COVID.

In this regard, industries like IT and retail have made substantial contributions. Particularly the latter has caught some off guard. A growing number of businesses who would otherwise be hesitant to open brick-and-mortar sites are doing so gradually and either renting, leasing, or purchasing physical storefronts.

However, due to regional development, eCommerce businesses rent or lease warehouses more frequently. Another illustration is how well-known corporations like Amazon and Google invest even more significantly in the global market because of their long-term potential.

More Than Ever, Commercial Real Estate Technology Is Crucial

Modern commercial real estate technology is a crucial lifeline in the current era. An excellent example of this is software used to oversee building projects and make sure they are completed on schedule and within budget.

In addition, organizations in this sector are keen to do anything they can to combat inflation and cut expenses, which is only possible thanks to today’s technological solutions, as material prices are still skyrocketing.

Therefore, it is reasonable to expect demand for both the platforms and the professionals who understand how to use them to increase in 2023. 

Nothing Is Changing With The Return To Work

The work-from-home syndrome is still on the minds of most CEOs despite several unexpected issues affecting commercial real estate enterprises and the rest of the nation, such as the war in Ukraine, inflation, rising rates, and the possibility of a recession.

More companies than ever before began deploying remote workers as a result of the pandemic. In addition, people have continued to work remotely as things slowly return to normal throughout the globe.

Although the ability to work from home is beneficial for employees, it has harmed the commercial real estate sector. Companies that have adopted a remote work model don’t require a commercial workspace.

As a result, according to several observers, the value of the commercial real estate sector will continue to decline in the upcoming year. 

Institutional Players Will Have More Opportunities with More Funding

As long as the market is significantly fragmented, the 20-year institutionalization trend in commercial real estate will continue as more well-known investment managers outperform smaller businesses and wealthy individuals.

At this point, when the industry is coping with high-interest rates and potential recession period concerns, size may be more valuable than ever. Through 2023, large commercial real estate organizations will have a bright future because there will be more opportunities to take advantage of economies of scale.

Larger institutions can tap more financial pools more affordably. In addition, all-cash transactions offer greater flexibility, which allows larger institutions to invest during more difficult economic times than their smaller counterparts.

By avoiding taking out loans, they can avoid paying the excessive interest rates that smaller institutions must pay to complete transactions.

As a result, these powerful institutions continue to have the freedom and flexibility to act fast on long-term investment strategies. In contrast, smaller institutions may take a break until things improve.

Impact Of Influencer Marketing

Gen-Z and millennial audiences are driving expansion in the commercial real estate market, with people even in the 23 to 25 age range purchasing commercial properties.

This is undoubtedly due to the pandemic, which has caused the younger population to spend more time indoors looking for a business. However, this investment category’s “high returns” feature and low-interest rates are the other driving forces for this post-pandemic trend.

However, real estate marketers must understand that macro and micro-influencers are one of the most efficient ways to connect with and win the confidence of this consumer sector. Additionally, they are more capable of bonding with the younger audience than celebrities.

Up to this point, influencer marketing has been used by industries including fashion, jewelry, and devices, as well as the beauty and personal care industries. Real estate will be another area that enlists influencers to create fascinating stories in the coming year.  

More Demand But Fewer Sales In A Seller’s Market,

Many experts believe the commercial real estate market will be the seller’s market. However, due to rising demand and tight supply, commercial property prices are expected to rise for some time.

In addition, millennials have reached the age where they can make their first commercial real estate investments. As a result, demand for commercial developments is growing daily. As a result, real estate will experience rising demand and inventory shortage in the future, making it a seller’s market.

Leveraging Low Mortgage Rates

Real estate investment in the US flooded before the pandemic due to the economic downturn of 2018. As a result, the industry’s capitalization increased by 19% to $470.7 billion. This development is influenced by commercial institutions’ determination to increase their net holdings.

The improvement in investment flow to the industry successfully reversed two years of decline. Additionally, modern technology, like real estate management platforms, has improved the management capacity of property owners.

Before the pandemic, this was the narrative. It is expected that by 2020, the value of the institutional-grade real estate will have increased by nearly $55.3 trillion, up from 29 trillion in 2012.

Institutional-grade real estate is expected to be worth $20.3 trillion in developing nations and $25 trillion in industrialized countries by 2025.

After the pandemic, the same narrative will probably keep happening, especially in the US property market. COVID-19 also appeared to have played a significant role. This is because the outbreak caused a mortgage decline.

Many newly-purchased commercial property owners in the US during the pandemic said that COVID-19 was a factor in their decision to do so. As a result, 54% of people profited from the decreased mortgage rates.

15% more people said they wished to leave areas where the outbreak had a severe impact. However, only 26% of respondents indicated that the pandemic had no bearing on their decision to buy a commercial property.

Urgent circumstances have accelerated the long-term trend of higher investments. Also, investors are interested. As a result, the market is still growing despite being slightly slower.

Final Takeaway,

Many challenges affect the commercial real estate industry, including rising rates and a slowing economy. Nevertheless, the market is still stable, although growth is anticipated to slow in the upcoming months.

Companies that use the net new intelligence that cutting-edge technology captures will be better positioned to seize these possibilities. Deal teams may uncover the most lucrative prospects by sourcing, assessing, carrying out, and reporting on deals from a single platform.

Want to learn more? Get in touch with us today.

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