What To Know When Buying Commercial Real Estate

Thursday, 30 March 2023, 10:04 am
Press Release: Hugh Grant

Did you know that the commercial real estate market is worth nearly $21 trillion dollars? Many people have found success investing in commercial real estate, but the pandemic shook up the market more than anyone was prepared for. As the market continues to recover from the damage caused by the pandemic, it is important to understand how the market changed, how it will continue to change, and the ways you can invest.

The COVID-19 pandemic led to a rise in office vacancies across the country. In San Francisco, before the pandemic there was only an office vacancy rate of about 6%. In 2022, that rate rose to over 15% due to the amount of companies that went fully remote during the lockdown.

Office prices also dropped by nearly 18%, and it could continue to drop up to 30% if the current market trends continue. The reason prices are dropping is due to the lower demand for space since the pandemic. Even with some companies returning to the office, employees are still spending 35% less time in the office than before the pandemic. This translates to 15% less office space demand per employee which could be bad news for those who invest in office spaces. However, there are ways to make the most out of office real estate.

With some companies returning to their offices, there is a demand for new spaces. Potential tenants are looking for larger offices with open spaces and lots of windows to create a more welcoming and collaborative environment for employees. With the number of vacant offices, you may consider investing and revamping them to meet current prospective tenants preferences. There are many other ways to convert office spaces to increase their earning power.

Office space has been categorized as Class D investment, meaning they will need a complete remodel or lots of work to be successful. However, many landlords are converting their vacant office spaces into retail spaces or multi-family homes which have a higher demand in this new real estate market.

There are multiple kinds of multifamily properties that you can invest in. Some of the most common are duplex or triplex apartments which contain two or three units. In cities, you can find mid-rise apartments that have 5-12 stories or high-rise apartments which contain 12 or more stories. These can hold many units, and with the ongoing housing shortage, multifamily commercial real estate is seeing a boom across the country.

Retail spaces are also becoming more popular. These spaces are typically shopping centers that sell items like clothing, food, and electronics. They can be small or can be as large as 400,000 square feet with multiple tenants. In New York City, retail space has become more popular with luxury brands such as Gucci, Givenchy, and Hermes moving in to open new locations. There are thousands of properties for luxury brands to move into within the city, with over 2 million commercial properties in the Empire State. So, even with market struggles and obstacles presented by the pandemic, there can still be lots of success to be found in the different kinds of commercial real estate.

There are new opportunities presenting themselves as the market continues to recover. In 2023, it is expected that data centers and industrial real estate are expected to be the most resilient in the coming year. Even being classified as Class D, office space may jump 10% as employers bring their workers back to the desks. Hotels will continue to recover from lockdown restrictions, presenting yet another avenue for investors to explore.

Stay informed and learn more about commercial real estate and the new opportunities emerging this year.

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