It’s safe to say the past few years caused unprecedented challenges in the commercial real estate industry. Major shifts in how buildings are used, valued, purchased and sold require professionals to be adaptable and flexible to keep up with industry changes. Keep in mind — 2023 is right around the corner.
The commercial real estate industry typically follows the general real estate industry’s lead, but this might not be the case in the new year. Several contributing factors influence the sector, but commercial property owners must be aware of future trends.
Here are seven trends in commercial real estate to keep in mind as the new year approaches.
1. Adapting to a New Workforce
It’s no secret that remote work is here to stay. It’s too soon to determine whether or not the number of employees returning to offices will reach pre-pandemic levels.
One thing for certain is that most employees want to avoid commuting, especially with rising gas prices. Some organizations can afford to hold onto their offices for the time being, but there’s no way to know how companies will handle this situation in the future.
PwC suggests that real estate owners should not expect significant departures from office buildings, even in the worst-case scenario.
The value of real estate is changing in the post-pandemic world, and new considerations impact how property is valued. Traditionally, value relied heavily on location, but recent trends such as experience and insights also play a role. Property owners also need to consider how space is being used, not just the state of occupancy.
A growing trend expected to continue into 2023 is real estate-as-a-service (REaaS). This innovative business model helps owners determine the true value of their property based on the aforementioned factors.
Smart buildings and cities are also fueling the growth of REaaS. The goal is to transform bottom-line benefits into new revenue and add physical and digital services instead of space alone.
Inflation is a key metric expected to play a role in commercial real estate in 2023. There’s no way to know if inflation will continue or remain stagnant. Despite the uncertainty, research from the National Association of Realtors (NAR) suggests growth eased up in commercial real estate in the third quarter of 2022.
Anything related to property ownership will force investors to mitigate the risk of increasing costs. For example, debt, construction, operating expenses, supply chain issues, rent and vacancy are some considerations to keep in mind in 2023.
Rising inflation and interest rates will undoubtedly impact commercial real estate into next year. Unfortunately, inflation, a looming recession and other economic challenges make future market conditions uncertain and seemingly unstable.
Every industry should prepare for new technologies, and commercial real estate is no different. Various digital solutions will become more prevalent moving into the new year.
For example, landlord software is a popular innovation expected to grow significantly. Various rental property management software, such as STRATAFOLIO, will help commercial landlords manage their portfolios.
Other technologies like the Internet of Things (IoT) and artificial intelligence (AI) will continue carving out their places in the industry.
Climate change is a top concern for many companies and individuals. Extreme weather and related effects on the environment have not gone unnoticed. Floods, fires, hurricanes and other changes could heavily impact high-risk areas in buildings.
Property owners must be aware of these future weather changes. Additionally, they should be willing to adapt to any significant developments in code requirements to remain compliant.
Some property owners will consider adding energy-efficient or renewable power systems to reduce high levels of carbon emissions exacerbating the climate change crisis.
Any business professional, regardless of industry, understands the increasingly important role of environmental, social and governance (ESG) strategies. ESG will likely be a value driver for investors in terms of commercial real estate.
The ultimate goal of ESG is for investors to better prepare their portfolios to handle future crises. Sustainability-related risks are entering the forefront, and social inequalities like affordable housing are critical considerations investors must make.
Smart buildings are the wave of the future. Cities and suburbs will incorporate smart technologies into office, retail and industrial properties to increase value. However, it’s important to keep other trends in mind, like green building and sustainable construction. You can also earn incentives for green building practices– more detail in this video.
Modern industries and markets are subject to volatility, which makes it challenging to accurately predict next year’s trends. However, these six things are important to keep an eye on as 2023 approaches. Several factors will influence the commercial real estate industry — the best thing you can do is to prepare now.
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