As an investor, it’s important to stay on top of the latest commercial real estate trends and understand how to make the most of your investment. If you’re investing in commercial real estate as a beginner, we provide you with the 5 top current trends and those projected for the following year. You will then know how best to proceed with your capital.
1 Low Interest Rates and Mortgages Predicted Until 2022
In September 2021, the Federal Reserve kept benchmark interest rates anchored near zero and predicted they would remain there for the foreseeable future. This hasn’t directly impacted mortgage rates, but its effects have trickled down. In the U.S., we’ve seen some of the lowest interest rates in decades. This makes it more affordable to invest in real estate. With low interest rates, you can afford to take out an investment loan. Usually, investment loans have higher interest rates, but the overall loan may cost less if you’re starting at a lower rate.
Today, mortgage guidelines are more flexible, which means more people are able to secure a mortgage. Finding a loan for your investment property is certainly a favorable option to consider.
2 Retail Properties Will See a Big Change
The second of our commercial real estate trends concerns retail. Retail has endured perhaps the greatest disturbance in the commercial real estate market during the pandemic. As a result, it will continue to witness a big change in use and client behavior. What’s uncertain, though, is if retail will ever return to pre-pandemic standards or be forced to adapt to a “new normal.”
This year, the U.S. has seen year-over-year e-commerce growth, which has surged to 44.5% in Q2 from 14.8% in Q1. This has put pressure on retailers, wholesalers, and third-party logistics companies to reach consumers while also lowering transportation costs. Naturally, digitally native brands have capitalized on this opportunistic shift in market trends. Given the increase in online shopping, the significance is that retail-to-industrial conversion projects will likely accelerate in 2021 as demand for warehouse spaces rapidly increases to meet the surge in e-commerce growth.
The Stockroom Will Become Top Priority
With many retailers expanding into the digital realm, owners must organize the stockroom like never before. They must set it up so they can fulfil the orders now coming in through multiple channels. Smaller retailers who lack centralized distribution will use sales floor space as a distribution center to pack and ship orders made through digital channels.
Local pickups have become an increasingly popular option for shoppers. Many retailers have had to facilitate this by creating a separate space either on the sales floor or outside the storefront for safe transactions.
3 Office Vs. Work From Home
The year 2020 saw a dramatic rise in office abandonment and an equally rapid shift to widespread remote work. This has continued into 2021. But as the vaccines roll out, people are slowly returning to the office. This trend has been the ultimate test of digital transformation in the workplace. Companies have had to invest in digital capabilities to facilitate workers to fulfil their roles from home.
As a result, the forecast is that some businesses will shrink their office space and footprints as a way to save costs. However, PWC reports that 60% of professionals agree that office tenants will look to expand spaces for new ways of collaboration and interaction, while complying with social distancing measures.
As people do return to the office, it’s likely that companies may favor a hybrid work style that combines remote working with use of offices. This hybrid nature could be a feature of the “new normal.” Buildings that provide flexible space options, touchless technology, and improved indoor air quality will be the most favorable for new leases.
It may be that occupiers will reduce their office space, but the quality of the space will take greater priority. This is something for building owners and investors to take into consideration when seeking new tenants and buying new property.
4 Multifamily is on the Rise
Demand for multifamily commercial real estate (i.e. apartment complexes) is on the rise thanks to “unbundling.” Many young renters who retreated to their family homes during the pandemic are now looking for new rentals. An increase in job opportunities is providing more financial flexibility. And this allows new renters to live independently.
Housing is considered a primary need and tenants tend to prioritize their rent payments, even in an economic crisis. Multifamily complexes have the lowest entry barriers, and therefore are expected to grow – but it could look a little different from expected.
Why? The most recent Commercial Market Insights, reported by the National Association of REALTORS® Research Group, reveals this: Since 2020 Q2 through 2021 Q3 (September 19), markets in the South and West regions of the US have accounted for most of the places where renters are moving into. This is led by Dallas, followed by Houston, Atlanta, New York, Los Angeles, Austin, Phoenix, Washington DC, Chicago, and Denver.
5 Suburban Living Over Urban Living
While urban living is still popular, suburban living – in duplex apartments upwards – is taking the real estate market by storm. Buyers are now looking to live in smaller towns close to metropolitan areas. They’re even willing to commute into the city if lower suburban home prices are on the cards. With more people preferring to work from home or shift towards a hybrid work style, buyers want more space for their home offices and a work-life balance.
Millennials are also entering a life stage where they’re trading in years of city life for larger housing options in less-dense suburban markets. Lower-density and less-expensive suburban submarkets held up remarkably well in 2020. They’re positioned to lead overall market performance in 2021.
On the other hand, as a result of people leaving the cities for the suburbs, home prices in many urban areas may decrease.
The Bottom Line of Commercial Real Estate Trends
Despite a global pandemic, the demand for commercial real estate in the US continues to recover, albeit unevenly across property types and geographic markets. Strong demands in housing, e-commerce, and working from home have brought increased investments in services and properties such as:
- multifamily apartment complexes
- data centers.
These have proven to be the most profitable commercial real estate so far this year. As we adapt to the “new norms,” those who are looking to invest should do so wisely and be sure to accommodate these current and future trends for lucrative returns.
Advantages of Investing with a Private Real Estate Investment Firm
Commercial real estate investing, when done wisely, can be a smart financial decision. You want to trust your investment to professionals who:
- Study the real estate market as well as socioeconomic and demographic patterns
- Look for promising opportunities in diverse asset classes
- Keep a hand in the operation and management of the properties in which they invest to help ensure their success and growth.
Start seeing your money multiply in this very profitable sector with Realty Capital Partners (RCP). Call us at (469) 533-4000 or email us at email@example.com to learn more about our investment opportunities today!