A sector-by-sector look at CRE so far in 2023
While this blog is often focused on the residential side of what we do, the companies that make up the Futura family are full of CRE (Commercial Real Estate) title and settlement experts too! With that in mind, we wanted to share how the commercial side of real estate is shaping up so far in 2023.
Like the rest of us, CRE professionals and investors are navigating uncertain times, but our teams are here to help guide your transactions to the finish line. Here’s a look at what the “new normal” means for each commercial sector.
Two opposing factors are causing the multifamily market to stabilize after record rental growth in 2022. As interest rates remain elevated, potential home buyers are staying in their rentals and waiting for rates to drop before entering the housing market. This is keeping rental vacancies low and rent prices high. On the other hand, a record 971,500 multifamily units were under construction at the beginning of the year. As more and more of these units become available, rental prices will drop nationwide. In the coming months, we expect these two forces to keep multifamily rental prices steady at their current prices.
The strongest sector for commercial real estate in 2022 looks to be sustaining its momentum so far this year. The industrial sector saw massive growth due to demand for logistics facilities thanks to skyrocketing e-commerce during the pandemic. Even with major tech players like Amazon and Meta halting large industrial projects, the historically low vacancy rate has created a pent-up demand to keep rental prices elevated.
According to JLL research, the health of the retail sector this spring depends on where you live. While many anticipated the demise of brick-and-mortar retail stores during the pandemic, they recovered surprisingly quickly in certain areas. Many people were eager for the return of in-person shopping and dining experiences. Retail locations in suburban areas are back to 2019 levels, but urban retail remains below the pre-pandemic mark, partly thanks to remote and hybrid work.
Speaking of WFH, the office sector is still struggling. The U.S. office occupancy averages 40%-60% of pre-pandemic levels, far lower than in developed countries worldwide. The United States’ bigger homes, lack of public transit and strong labor market have combined to keep workers out of the office for the foreseeable future. That’s why many office spaces are being converted for alternative uses. Experts say there is still demand for high-quality office space for hybrid work environments, but low-quality office space will remain empty as workers prefer the comfort of their homes. Some developers are focusing on reimaging the office space to get people back into the office. They are following the hotel model, adding amenities and accommodations that make working in the office better than working from home.
Even though commercial real estate is a mixed bag right now, we know there are plenty of great opportunities as a CRE professional or investor in the communities we serve. Reach out to our nearest branch whenever you need us. Our teams are always here to guide any transaction, commercial or residential, that you and your clients have.