The commercial real estate market has undergone a range of changes over the past year. Those changes have impacted the growth, stabilization, and investor interest in commercial real estate.
When looking at the numbers, the commercial real estate industry has started to slightly recover in early 2021. However, the supply still exceeds demand in most sectors of the commercial property market, and the numbers differ from one area of the commercial property market to another.
The lender rates in 2021 remain below the level of the previous several years in general. It is likely, that lender rates will go up particularly in the sectors where investor interest is growing.
With the growing trend of remote work from both home and all over the world, many companies are adopting a more flexible remote work policy. Consequently, commercial office buildings and real estate are not in high demand, as such, investor interest is on the decline for this sector. Even though the tendency might change over the next 2-3 years, new office building construction is predicted to decline.
The tourism market has suffered from enormous losses and investor interest is also low for hotels and malls. It is predicted that the number of tourists traveling will be increasing but the industry will not see tourism numbers like those during the pre-pandemic era until 2026.
On the other hand, we are seeing increased investor interest for farmland and industrial buildings. As the volumes of delivery and distribution are becoming greater and logistics companies expand their operations, investor interest will continue to see increases in these sectors.
There are not many countries in the world that can boast a strong and prosperous economy right now. Economic recovery is critical for almost every state and country to a lesser or greater extent.
To get back on track even faster, banks are interested in keeping the interest rates low at least for short-term loans. As a result, commercial lending will have a favorable climate for further development. To keep the market moving in the right direction, long-term interest rates will likely see a slight decrease compared to the pre-pandemic rates.
Supply and demand
Current investor interest indicates that there will be a growing demand for farmland and industrial buildings. More money will be invested in construction of the latter or the refurbishment of other types of commercial real estate.
Some experts are on the fence about what demand will look like for commercial office real estate in 2-3 years. Even though remote working for employees has proven to be effective, many workers long to collaborate with coworkers and separate home environments from office. All things considered, we should expect to see a decrease in demand for commercial office space as remote work has gained more acceptance in both corporate and small business sectors.
Warehouse spaces and buildings are also in demand, so their construction over the next 5 years is expected to increase. The increase in warehouse and industrial construction is expected to take place in the suburbs of larger cities and more rural small towns.
While overall hotel construction is expected to decline for the inner city, construction of suburban retreat hotels with open-air architecture to promote outdoor activity could see an increase.
The amount of digital information and data is growing exponentially every day. This data must be stored somewhere which requires more storage servers, storage warehouses and data centers to house the increasing number of data storage devices. As such, we should expect to see an uptick in construction growth for this sector.