If you plan to invest in commercial real estate in the future, you should know what commercial real estate trends will likely make the market grow in the next few years. Co-working spaces and freehold property are among the most popular trends to be anticipated. These will increase the return on investment for investors.
Electronic Payment Technology Upgrades
With the rapid growth of the digital world, it’s no surprise that commercial real estate is embracing electronic payment technologies. Property managers, developers, and owners increasingly rely on these technologies to improve their payment offerings to tenants and vendors. According to a recent survey, more than half of middle-market real estate leaders have upgraded their existing systems to accommodate new technology.
The first wave of this transformation started in the early days of the technology pandemic when the industry had to change its business models. While many commercial real estate companies moved forward with initiatives to digitize payment processes, many property managers remained skeptical about giving up their legacy systems.
Despite these challenges, the industry will continue to see rapid growth in the coming years. New technologies will make commercial real estate operations more efficient and reduce costs. Tokenization is one such innovation, and this technology divides ownership of commercial property into a fixed number of tokens. It could revolutionize real estate ownership and title insurance.
Retail Space Resilience to covid-19
Retail space in Houston, Texas, is growing at a rapid pace, with over 2.5 million square feet being constructed over the past year. This growth is spurred by the COVID pandemic and rising demand for retail space. The city is experiencing good job growth, but there is still a large amount of unused space. In fact, the area has the fourth-largest inventory of retail space in the United States.
As a result, the retail market in the South is outperforming the Northeast, Midwest, and West Coast. In November 2021, retail foot traffic increased by 3.9 percent. Meanwhile, retail sales rose by 30.6 percent. The report also showed that the number of bankruptcies fell to a five-year low, and openings exceeded closures for the first time since 2016.
Despite the current downturn, the commercial real estate industry is poised for better times. Retail space, office space, and multifamily properties are expected to continue to grow slowly but show signs of recovery. In addition, investment interest in multifamily properties and industrial assets continues to increase. The increase in demand for these sectors has led some private equity and REIT firms to focus on alternative property types.
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Industrial and Warehouse Popularity
As the economy continues improving, the Industrial and Warehouse markets are expected to flourish. However, home prices in urban areas may begin to decline as millennials opt for more affordable housing options in suburban markets. With that in mind, consulting with a qualified real estate professional is essential when preparing to sell your property.
Despite these negative trends, the industrial sector is likely to remain the top investment. The growing popularity of e-commerce will likely drive an increase in demand for warehouses and other industrial properties. This demand will result in higher property values and an increase in average rent prices for warehouse owners.
Developers are becoming more creative with their development concepts. The trend toward multi-story industrial buildings will help increase the demand for warehouse space and logistics facilities. In some markets, such as Los Angeles, the vacancy rate is low. Meanwhile, the demand for affordable housing is still higher than the supply.
Proptech
The real estate industry is evolving, and so is its technology. Proptech has emerged as a valuable tool for property managers and tenants. It streamlines routine tasks, such as rent collection, lease administration, and contracts. It also helps in meeting the expectations of residents and staff. It was first introduced to the real estate market in the 1990s and spawned an innovation wave that democratized many services. Today’s wave of Proptech innovations is fueled by artificial intelligence and other technological advances.
The retail industry is rapidly shifting towards e-commerce, but Proptech real estate companies, are transforming the brick-and-mortar shopping experience and landlord management of shopping centers. These innovative technologies are driving investments in new retail formats, in-store technology, and supply chain solutions. Investors will pour $109 billion into these sectors by 2021, nearly double the amount invested in retail technology in 2020.
Commercial real estate will become a more customer-centric industry as more tenants demand technological features. Private equity firms and REITs are increasingly using new technologies to enhance the customer experience.
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Hybrid Work
Increasingly, large companies are beginning to implement hybrid work. While the exact approach may differ, the most common process involves creating guidelines for when people can work and who can not. Hybrid work can have multiple advantages for companies and can improve employee satisfaction while lowering overhead costs. However, the process of implementing this new type of work must be gradual and tailored to the company’s culture.
Some employers are also implementing tech tools for their employees to stay connected. For example, some platforms allow employees to reserve meeting rooms, schedule office visits and even update their health check status. These tools are more convenient than having to physically visit the office to complete tasks. However, these changes have created challenges for managers.
Commercial real estate executives need to adapt and find ways to accommodate this new way of working. One way to do this is to implement design principles. While traditional workspaces were focused mainly on dedicated seating and in-office collaboration, hybrid work is now more widely adopted. This means that many companies will need less space per employee.
Multifamily Property Recovery
While certain markets face challenges, 2022 is expected to steadily increase multifamily property prices. In addition, REIT mergers and acquisitions could continue to increase. In the United States, the multifamily sector is set to post a record year. The increasing economy has catalyzed the formation of new households, boosting demand for rental units. Demand is expected to keep pace with new construction, and multifamily occupancy levels are expected to rise nearly 7% next year.
The multifamily market has shown remarkable performance in 2021, with capital flooding the market. In a recent report, the national multifamily vacancy rate is 2.6%, and the market is currently undersupplied. However, a high mortgage rate will make home purchases unaffordable for nearly one million renter households.
While there are several trends driving commercial real estate values in the United States, the most promising ones are multifamily property recovery and industrial real estate. The U.S. economy has recovered from the recent pandemic, which has impacted the real estate market. However, the market isn’t evenly spread, and investors should focus on finding the longer-term winners.
Commercial Real Estate Trends of 2022 Conclusion
While rent prices remain high, the office market is projected to remain stable over the next year. The demand for flexible floor plans and quality working environments will increase. As a result, landlords and other key players in the commercial real estate ecosystem will work to create workspaces that improve employee experience and satisfaction.
The industrial sector will likely continue to be one of the best choices for investment in the coming years. The market will continue to grow in popularity, despite challenges such as higher rents, a rising demand for warehouse space, and lower delinquency rates. However, increased costs for raw materials, power tariff hikes, and labor shortages will put increased pressure on the industrial sector. In addition, finding the right asset will be more challenging as prices rise.
The real estate industry will continue to see redevelopment in secondary markets, and investors with an eye toward flexibility can capitalize on redevelopment opportunities. As a result, more developers will seek to partner with professional third-party representatives with the necessary resources and experience to execute real estate and construction projects. Also, mixed-use zoning will continue to be an essential source of value-added investments. Finally, the industry will continue to be customer-centric, with a greater focus on online platforms that improve the tenant experience.
