The Future of Commercial Real Estate – Trends for 2023

James C Dragon

August 22, 2022

Retail properties will post lower returns in 2023 compared to the middle of 2020. Office properties will benefit from a robust fiscal stimulus. Multifamily properties will outperform in rent growth. Finally, the impact of Digitalization will continue to affect the industry. We’ll discuss these trends in this article. If you’re interested in investing in commercial real estate, read on. There are some interesting trends to consider for your next investment project.

Retail properties will generate lower returns in 2023 compared to the middle of 2020

While the recent pandemic has helped stoke the retail property sector’s decline, the results are far from positive. For one, the outlook for rental rates is less rosy than investors may have expected. While home improvement and dollar stores are a few exceptions, most retail sectors will likely experience lower returns in the second half of 2020. Meanwhile, the office sector is in a significant reset. While the outcome varies depending on location, building layout, and ventilation, vacancies will likely be high.

Rising inflation will dampen consumer demand and increase the risk of recession. It will also lead to a slowdown in economic activity. As a result, the real estate market will likely generate lower returns in 2023 than in the middle of 2020. Rising prices will also cause sticker shock, dampening buyer demand and making them hesitate to spend. This could be a perfect time if you’re interested in flipping properties. As long as your prices don’t rise too much, the retail property market is prime for flipping.

Multifamily properties will outperform in rent growth

Two key factors driving rent growth in multifamily properties are demand and supply. Demand has increased at an alarming rate over the last decade, and supply has not kept up. In Indianapolis, the housing supply was less than half of the amount needed in 2021. Consequently, rents are rising, and many opt to rent rather than buy a house. They like the flexibility and convenience of renting instead of owning a home.

Those who invest in multifamily properties will benefit from the growing demand for rental housing. Rents will continue to rise, which will allow for ample repricing power. The ULI’s fall 2021 real estate economic forecast is based on surveys of 36 major real estate organizations. According to the ULI, the price growth of CRE properties will be around 10% this year, 7% in 2022, and 6% in 2023. Prices will rise at a different rate depending on the segment. While retail and office rent growth is expected to remain low, multifamily properties will continue to outperform the market in rent growth.

Digitalization will continue to impact CRE

Many companies in this industry are adopting new technology to improve the customer experience. While there are already several IoT solutions available, intelligent real estate owners are already ahead of the curve. For example, four out of five companies currently use data collected through IoT sensors to improve their properties. These data will help them find the right amenities for their tenants and improve their customer experience.

Companies are rapidly adopting new technologies. They are increasing their adoption rate by three to seven years in a few months. Meanwhile, core business practices are not changing at the same pace. As a result, those companies with the highest technology endowments are running faster. Digitalization has a profound effect on the real estate market. The challenges associated with this growth include a growing number of challenges.