Did you know that the commercial real estate market today is worth almost $21 trillion? In terms of the commercial real estate outlook in 2023, we have seen a rise in office vacancies in San Francisco, almost 7% more vacancy in 2022 compared to before the pandemic. Rising rates have lowered overall commercial property prices by 13% from 2022’s peak with $450 billion worth of loans expected to come in each of the next four years. Employees are also currently spending between 25% to 35% less time in the office compared to before the pandemic with companies experiencing 15% less office space demand per employee due to home office setups.
Commercial Real Estate is Changing
Institutional investors know that except for the office, commercial real estate is still going strong. Therefore, you can expect buying opportunities to arise from distress or dislocation in markets. According to the Colliers Manhattan office leasing report, volume grew by 26% to a little over 9 million square feet with about a 50% increase from the 16.34 million square feet leased during the same period back in 2021. JLL Q3 industrial leasing activity shows that the year-to-date volume is now 2.3 million square feet, or almost a 45% increase compared to all of 2021 combined.
Luxury retail specifically grew in Manhattan as Givenchy, Hermès, and Gucci acquired new spaces. The Empire State now contains 2,053,393 commercial properties. But what are all of the different types of commercial real estate?
Understanding the Types of Commercial Real Estate
One major type is retail, which includes general purpose shopping centers, power centers, and community retail centers. Multifamily real estate encompasses apartments with multiple units, garden apartments, and apartments with multiple stories. Special purpose buildings are those categorized as stadiums, amusement parks, movie theaters, and more while mixed use is property that includes two or more property types. Office space is grouped into classes with class A properties being the newest and the most luxurious spaces located in the best locations and class D properties needing a complete remodel.
Industrial real estate involves properties used as manufacturing, distribution, and logistics facilities. Hotel and hospitality includes places for extended stay as well. Agricultural land, infill, and brownfield are real estate that focuses on land. Some commercial real estate professionals even sell businesses with their properties, which saves precious time, money, and effort for everyone involved.
However, there are several obstacles and challenges when selling real estate. One big challenge is the market uncertainty that has many investors pausing their investments and waiting for the market to correct and gain new opportunities. Rising interest rates is an issue as well shifts in portfolio values has seen investors active in America now focusing on value-add, opportunistic, and core options. Post-pandemic, office occupancies in New York City have plateaued at a high of 47% with New York City real estate sales predicted to drop almost 16% and hit $101 billion.
In Conclusion
Market opportunities and trends in 2023 are showing that data centers and industrial real estate will probably be the most resilient in the coming year while hotels continue to recover from pandemic restrictions. Multifamily investors will benefit from the persistent housing shortage and continuous demand for suburban homes. Dynamic pricing on a lease-by-lease basis will include improvements and concessions for office space.
For New York’s commercial real estate opportunities, landlords are considering changing empty office space into housing units. Demand for industrial space may be ongoing due to supply-demand imbalances and low land supply for the next several years. Are you thinking of investing in New York real estate? Check out the infographic below for more:
Source: ChessRealtors.com
