Did you know the commercial real estate market is worth nearly $21 trillion? There are lots of opportunities within this market, but with the market suffering due to the pandemic there could be some rough waters ahead.
Still, seasoned investors know that even with the risks, the commercial real estate market is strong. The best way to weigh the benefits with the risks and assess whether or not you want to invest in commercial real estate is to be informed on market trends.
One of the reasons commercial real estate took such a hit during the pandemic was due to the rise in office vacancies. In San Francisco, there was only a 6% office vacancy rate pre-pandemic. In 2022, that rate shot up to 15% as more companies transitioned to remote work and employees spent less and less time in the office. Even in 2023 with more people returning to their desks, employees are spending 25-30% less time in the office than before the pandemic.
Even with vacancies on the rise, it is expected that people will continue to return to the office over the next few years. However, companies are not looking to return to their offices as they did pre-pandemic. Now, tenants are looking for office spaces that feature large windows and open spaces in order to improve overall morale and foster collaboration between their employees. If you are looking to invest in office spaces, there may be opportunities coming if you are willing to renovate.
Although office spaces are facing some rough waters, there has been a boom in other types of commercial real estate. Multifamily units are becoming more popular as the housing crisis persists. There are many types of multifamily properties to invest in that can house many different units. In small cities, triplex and quadruplex apartments are popular as they only have three to four units. In larger cities like New York, you can invest in mid-rise or high-rise properties that are 5-12 stories and can house many families at a time.
Seeing the high need for residential units and the decrease in need for office spaces, many landlords are considering converting their empty office spaces into residential units. Large cities are finding success in this route as suburban homes are hard to come by but there are numerous unused office and retail properties to be converted.
In other commercial real estate news, it is predicted that the hotel and hospitality industry will continue to recover into 2023 and further years, with social distancing and quarantine restrictions being lifted. In fact, it is estimated that 2023 hotel occupancy tax revenue could reach $514 million, a nearly 50% increase from the previous year. Retail spaces are also seeing a boom as more luxury brands are looking to find physical store locations in big cities.
While the commercial real estate market took a hit during the pandemic, it is expected that the market will continue to recover in the coming years. These properties remain a wise investment, as long as you understand the market. To learn more about the commercial real estate market, take a look at the infographic below: