2023 Commercial Real Estate Trends 

Asset Class Breakdown 

Depending upon what asset class you are working with, your success in the market could vary greatly since each one has its own unique challenges. Let’s compare which asset classes are succeeding or struggling: 

What’s Working 

Multifamily Housing: According to Moody’s Analytics, multifamily housing has continued to fair well over the last couple of years, with developers continuing to add to the ever-growing supply. Where the national vacancy rate was 4.5% at the end of 2022, the median vacancy rate was 3.9% in April 2023.  

Industrial and Retail: Along with apartments, National Association of Realtors® Chief Economist Lawrence Yun pointed to industrial and retail class assets as  keeping the commercial real estate industry relatively stable. Between industrial and retail real estate, 361 million square feet and 64 million square feet of net positive absorptions, respectively,  were added between May 2022-2023.  

What’s Not 

Office Space: The COVID-19 pandemic created a wave of change for how businesses approach work that still has an impact on the commercial real estate market today. With remote and hybrid office work remaining an increasingly popular option, the demand for office space has dwindled. According to JPMorgan, although A-class properties with leases of 10 years or more are performing well, B- and C-class offices with shorter leases could struggle.  

Taking in these considerations along with the impact of the increasing interest rates from the government, Yun estimates that the commercial real estate transaction volume will overall decline in 2023 by 27%.  

One of the commercial real estate trends we’re seeing in 2023 is the reduced use of office space.

Other Real Estate Trends to Follow 

Life Science on the Rise 

Life science real estate, including laboratory and research facilities, is an emerging asset class that is gaining interest from investors. Stemming from the pandemic’s uncovered need for proactive medicine development, this type of real estate is expected to be prominent throughout 2023 as the demand for medical research facilities and specialized properties grows.  

Keep Technology Top of Mind 

In his article for Forbes, 15-year commercial real estate veteran Ryan McKenzie slated the impact of technology as one of the top 2023 real estate trends to follow. We’re beginning to see a significant shift towards the use of advanced technology within both residential and commercial real estate. Virtual property tours are becoming more popular as they allow investors and tenants to view properties remotely and the use of blockchain enables secure, transparent, and efficient transactions. 

Perpetual Title Tip: Want to learn how Perpetual Title has innovated when it comes to real estate technology? Discover how we helped deliver the world’s first place to buy and sell U.S. real estate using cryptocurrency.  

Make Commercial Real Estate Trends Work for You 

While there are challenges and uncertainties within the commercial real estate space, there are also unique opportunities and trends worth capitalizing on. To navigate the market successfully, investors and other stakeholders should stay informed about these real estate trends and remain open to changing circumstances. By doing so, they position themselves for success in the dynamic and evolving world of commercial real estate. Ready to learn more? Gain greater confidence by learning how to use commercial reals estate as an inflation hedge. 

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What comes to mind when you think of real estate investment? Does it conjure images of buying fixer-uppers and flipping houses? While this is a completely acceptable way to dip your toe into the market, most people don’t realize that there are many different types of beneficial real estate investment that go beyond single-family, residential homes. Let’s discuss the three types of real estate investment you can capitalize on, their pros and cons, and how to start investing. 

Types of Real Estate Investment to Consider 

1. Multifamily Housing 

If you’re looking for types of real estate investment that are like residential properties, multifamily housing is a logical choice. Similar to how you’d put money towards a property made for housing, this type of real estate is considered anything with five or more units attached to it, such as apartments, condos, duplexes, and townhomes. Multifamily housing gives investors the freedom to offer both long-term rentals and short-term stays. Additionally, if you live in one of the units yourself, you’ll be eligible for certain tax and insurance breaks. 

Pros: Your rental strategy can be flexible, and you have certain tax and insurance benefits if you live on the property. 

Cons: Units and buildings will require a certain amount of upkeep, meaning you’ll need to either have the time and skills to meet their needs or hire someone to do maintenance. 

2. Commercial 

Commercial real estate is any space that is rented or leased out by a business. While this type of real estate investment has an array of examples—such as gas stations, restaurants, and more—two common subsets of this category include retail and industrial investment. Retail investment refers to properties where goods and services are sold like stores or strip malls. Industrial real estate is where products are made and stored, such as warehouses or factories. Although it may take some time, the best part of any of these commercial choices is that the more the business is successful, the faster your land will appreciate in value. 

Pros: There’s an opportunity for a high yield return on your investment. Additionally, property maintenance may be more hands-off than other options when dealing with a business. 

Cons: Commercial investments can be expensive and take time, especially if you’re dealing with multiple leases. There also tends to be more risk involved due to issues concerning injuries or property damage. 

3. Raw Land 

When we think of different types of real estate investment, we sometimes overlook the value that simple, untouched land can offer. Void of any buildings, pathways, or even crops, raw land is a blank canvas that can be very attractive to a variety of interested parties. Consider leasing it to farmers for their crops or livestock; or alternatively, hold onto the property for a while and then sell it to a developer for an appreciated value. According to Rocket Mortgage, this investment is an option because you can use a land loan to purchase raw land, especially if you go the development route. 

Pros: Raw land is often a less expensive investment compared to built upon properties. They’re also easier to maintain since it requires no building maintenance. 

Cons: Land can take a long time to appreciate if you hold it, and there are very few tax advantages to raw land. Zoning approval can also be difficult to obtain if you have plans to develop on it. 

Getting Started in Real Estate Investment 

If you’re curious about joining the world of real estate, it can be overwhelming to consider all the different types of real estate investment at your disposal. One thing is for certain. No matter which real estate purchase you choose, title insurance is always highly recommended. Perpetual Title offers a professional voice to assist you with understanding the complexities of real estate investing and what option is best for you. When you’re ready to dive into real estate, we’ll ensure your investments remain protected. Contact the experienced staff at Perpetual Title today to learn more about your investment options. 

The post Investing 101: 3 Types of Real Estate Investment first appeared on Perpetual Title.

What is Inflation?

Inflation is the rise in prices, meaning a consumer cannot purchase the same product(s) for the same price. The rate of inflation is often measured by the consumer price index. This calculates the average change over time in the prices consumers pay for products and services. Inflation has greatly impacted numerous industries, but the real estate market has been permanently altered due to this economic stress. The real estate industry has experienced rising prices throughout the years, with every decade being more expensive than the previous. Due to inflation and other economic factors, home prices have grown a dramatic 326.1 % since the 1950s.

Real Estate vs. Inflation

Inflation is a time-sensitive situation and long-term investments are exceptionally important during these times. Commercial real estate is among the few investments that remain protected from the uneasy market and starts on the path of recovery much sooner. These quicker recovery times are a significant factor why investors make a beeline for commercial real estate assets.

A way to fight inflation is through an inflation hedge. This investment protects the decreased purchasing power of a currency that follows from the loss of its value due to rising costs. This process involves investing in an asset that is predicted to maintain or increase its value over a designated period. On the other hand, the hedge could involve taking a higher position in assets, this may decrease in value less rapidly than the currency’s value.

Hedging can help protect the investment’s value. Certain investments might seem to provide a decent return, but with inflation, they can be sold at a loss. Assets that are considered to be part of an inflation hedge can be self-fulfilling; which keeps their values high even though the intrinsic value may be lower.

Real Estate Investment Options

Fractional Ownership

This option allows diversification of the portfolio, and the individual can choose without limitation the assets they would like to invest in.

Unimproved Property

Unimproved property is land with nothing on it including buildings, paths, and crops. Investing in unimproved property is a unique opportunity for investors to diversify their portfolios and tends to be cheaper than purchasing developed land or other types of property.

Commercial Real Estate (CRE)

This option allows the individual to own or co-own commercial property. This is a great option if you have knowledge of the market you are investing in and can handle the formalities involved in the ownership process. Individuals can also choose to purchase wholesale commercial properties. This is a great way to enter begin investing in commercial real estate with little capital or experience, to get started check out these tips.

Real Estate Investment Trusts (REITs)

REITs are companies that work with the purchase, management, or financing of real estate. They allow diversification and remove the unnecessary stress of excessive formalities present when purchasing real estate. Similar to a mutual fund, an individual can choose the REITs, but not the assets it is invested in.

Investors can use a REIT to generate income without having direct ownership responsibilities. | Photo: Reits Market

How Can Commercial Real Estate Protect Investors?

Commercial real estate as an inflation hedge has proven time and time again to be a successful strategy. It’s an asset class that generates predictable returns among other benefits, here are three:

Increasing Rental Income

Property rental prices can be attributed to rising inflation. This can cause an increase in net operating income, which will appreciate the property’s value further. If the property’s value is more than the inflation rate, the investment will not be hampered if they are holding commercial real estate.

The Lease Factor

Lease agreements for commercial real estate are structured in a way that increases the rent at regular intervals throughout the leasing period. Based on the property and demand of the market, the clause for different assets will be different. If these regular increases outpace the rate, the relative return will stay positive.

Property Scarcity

Space will always keep decreasing. Houses, apartments, and other buildings are created to increase the market’s supply. However, this increase in supply causes scarcity of space. In dense real estate markets, high demand and limited supply contribute to the appreciation of prices for real estate, which is positive for investors.

Ready to Fight Inflation? Invest in Property Today!

Using commercial real estate as an inflation hedge is a great strategy to preserve your finances and prevent current and future losses. There are a few money-making options you can pursue, but it is always best to examine all your options and choose the best fit for you, including choosing the right partners. Perpetual Title provides commercial real estate title services across the United States. With in-house attorneys and a team of knowledgeable real estate professionals, we have the experience and expertise to manage your next commercial real estate transaction. To learn more about our commercial title insurance and escrow services or to schedule your closing, contact us today.

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