The post-pandemic time is all about recovery from the losses. While the industries are getting a good response, the commercial real estate still continues to take a steep slow down.
The buyers in the industry are now battling inflation and high capital costs, resulting in lower transaction values.
Thus, many of the investors have decided to put their pencils down waiting for such a turbulent time to go away before making any further investments.
With the current situation of the market, there are new trends and technologies coming up. The guide ahead will provide clear insights about the top 23 trends and technologies of 2023 you need to be aware of.
Commercial real estate financial trends
1. CRE investment decreased by 55% YOY in Q1
Banking turmoil, global volatility, and broader macroeconomics have reduced CRE investment volume. The stats revealed by CBRE show a decrease in the annual investment volume by 51% to $78B in Q1.
Despite the market-wide slowdown, there are multiple sectors that have benefited from the current situation. But most firms, even those investing in favourable markets like investing in multi-family, are waiting to get out of the storm to sail in the smooth waters.
2. Decrease in commercial prices by 15% year by year
As per Green Street Commercial Property Price Index, there has been a significant drop of 15% over the past year by year as of May.
The data shows there has been a drop in institutional quality, building prices and price index below a basic level for the first time. Besides, it is also the higher interest rate that has majorly dampened commercial prices.
3. Focus on quality continues
There is a major housing shortage for multi-family and SFR, but the other markets are seeing a more focus on quality as the investors vie for class A properties from classes A to C of CRE property.
Through the impact of E-Commerce on commercial real estate, we see a decrease in the need for space, and so building quality has now become a major real estate trend to stay on the top list of consideration.
4. CRE firms are cutting down on cost
Rising interest rate, slow economic activity, increased borrowing cost, and greater uncertainty has shifted the focus. Thus, the firms are continuing research for new line items. Once the market gets back to a better position, those forms that have built efficiency will be in a better position to win.
5. Huge increase in rental across major property sectors
The micro tribes no doubt have impacted the sector in different ways and have caused various results when it comes to rent growth. For instance, multi-family saw a rent growth by 2.5% over one year. The office, on the other hand, saw even longer growth at 0.9%. This is because of low demand and higher vacancies.
6. CRE moving towards pencils down mode
The ongoing inflammation and the high capital cost have encouraged investors to shift their focus towards pencil-down mode. They are now waiting until the borrowing cost reduces and investment seems a lot more viable. While there are some firms who are seeing the current opportunity to build data-driven efficiency to react better when the market is high o
7. CRE lending decreased in Q1 2023 as banks continue to lead
The non-bank lenders have made the most of the opportunity in the market, ruled by inflation and higher risk. But despite this, there is a slowed lending activity. It is believed that the CRE lending momentum index saw a decline by 33% quarter over quarter.
8. CRE valuation fall
High demand for specific property and vacancy rates have driven a decline in the CRE valuation, especially in the office markets. Banks have now urged the owners to prepare for a major decline in the portfolio value and losses. While the experts are still optimistic, the CRE trend in 2023 could dictate market activity for years to come.
9. ESG transition from trend to important criteria for CRE investors
Environmental concerns have become the highlight of the current time, and CRE sees them as no different kinds. Investors are now increasingly prioritizing ESG to set a good impression in front of the audience. It can be considered as their efforts to quality.
But beyond this, boosting energy efficiency and decreasing the operational cost will help get a higher profit, which will be beneficial for the investors.
10. Investors strategies and audit around lender exposure
The investors are all alarmed by the recent banking turmoil across Signature Bank, Silicon Valley Bank and others. This has resulted in the emergence of a CRE trend, which is rapidly auditing exposure to capital sources and other criteria.
Here, technology can be quite great for the investors to gain better visibility required to handle and overcome the rest of the current market.
11. Creative solution to tighten the financial market and explore new opportunities
The rising interest rate has become quite a headache for the CRE industry. In fact, the policymakers came up with a plan to raise the Central bank interest rate to a benchmark of 5 to 5.25%.
Here, tightening monetary policy has increased limited available financing opportunities and borrowing costs for Commercial Real Estate investors.
Commercial real estate asset class and market trends
1. Retail continuously to evolve
E-commerce has been one of those industries that has benefited greatly due to the COVID-19 times. By the end of 2026, e-commerce is expected to account for about 25% of Global retail sales.
However, the CRE trends resulting from this growth saw a decline. Thus, the importance of retail as an asset has lost its value
Small businesses are suffering a lot due to a decline in foot traffic, and established joints have filed for bankruptcy.
Although retail prominence will continue, it will not fade away entirely. Customers may place orders online, but there will still be a need for brick-and-mortar buildings to deliver important experiences.
2. Decrease in popularity of malls
Similar to retail, malls also have seen a decline in foot traffic as the E-Commerce demand has increased greatly. But despite this, there are opportunities available within the sector. Strip malls, for instance, are extremely populated residential areas that are outpacing the traditional malls.
3. Industrial is beyond peak performance but still strong
There is now a strong boost in popularity for industrial properties like final mile fulfilment centres and warehouses. This is all because of a rising demand for the E-Commerce platform. Even as retail declines, the distribution sectors will be an integral part of the businesses, especially E-Commerce.
4. Multi-family continuously to benefit from strong fundamentals
Generally, investor’s see multi-family investments as relatively low-risk. Post-pandemic relocation has caused multi-family performance to come down. Now, layoffs, inflation and other ongoing things have slowed down the momentum. But still, the performance remains strong.
5. Boom of Life sciences
The pandemic time exposed the need for Greater attention to prove active medicine development. This has made a huge way for life sciences to shine brighter. It is seen that the life sciences market has stayed strong in 2022 and will continue to grow in the coming time.
6. Lower office demand
The transition back to office is getting tough. This is why most businesses have decided to work remotely, which is causing a huge stir in the available spaces. There has been a huge decrease in the demand for the spaces, resulting in a great loss.
7. Ghost kitchens remain strong
The pandemic time was quite tough for the restaurants. Despite being inoperative for months, they had to pay huge rent. This led to the demand for ghost kitchens. They are the facilities that cook food on-site and deliver it exclusively. Thus, there won’t be any cost of decorating, building or maintaining the space.
8. Operational real estate is trending upward
While the investigations are generally not focused on the operation of real estate, they have seen a great demand and will continue to rise.
9. Great demand for single-family home rentals
The higher interests have made it difficult to own a house. Thus, there is a huge demand for single-family home rentals. An investment here will turn out to be quite fruitful and bring in major returns.
Commercial real estate technology trends
1. Software and technology are a major priority for organizations
The CRE industry is now focusing on incorporating technology and software in the industry. This is a major transition, making it easier to get the properties in front of the audience without being physically present. Not to mention, it has already made the management process a lot easier and more comfortable.
2. Investors will make faster decisions as data efficiency increases
The investors can now have streamlined access to standardized data, allowing them to get strategic insights faster than possible through traditional modes. The availability of such advanced systems will bring a major change in the industry.
3. Cybersecurity becomes a major part of the industry
Data no doubt has always been quite an essential part of the CRE industry, but COVID-19 times have emphasized its value. Protecting the data against ransomware attacks is essential.
Thus, cyber security has become an integral part of the industry. The firms are now incorporating advanced tools for protecting the data and keeping it safe.
Conclusion
The CRE industry has evolved greatly during the last few years. There are a lot of changes brought to deal with the requirements of the Investors. If you are ready to make the change but facing any financial crunches, consider taking the support from Private Capital Investors.
They have got the best professionals available to make your experience better. They will get you the best financial support possible.
