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2023 Challenges in Commercial Real Estate

With the rise of new technologies and changing consumer behavior, commercial real estate is facing a slew of challenges in the coming years. As we look ahead to 2023, here are some of the major challenges that commercial real estate professionals should be aware of. The commercial real estate sector is facing several major challenges in 2023. Despite economic headwinds, the pace of change will not ease. Companies must learn to adapt to hybrid working arrangements and offices must evolve with it. Retailers are reaping the benefits of a long period of change which has attracted investor interest. Data centers and industrial real estate have been very resilient so far, but the hotel industry is still recovering from pandemic restrictions. In addition, life sciences activity, workforce housing shortages and rising ESG expectations all pose challenges to commercial real estate in 2021 and beyond.

1 min read

Rising Interest Rates
Interest rates have been on the rise since 2021, meaning that borrowing money to purchase or renovate properties could become much more expensive. This could lead to fewer investors entering the market, as well as more people opting out of purchasing or leasing entirely. For those who do enter the market, it will be important to plan carefully and budget accordingly to ensure they can afford their monthly mortgage payments. Additionally, landlords may need to consider increasing rents in order to cover their higher interest rates.

Changing Preferences in Office Space
As remote work has become increasingly popular over the past year, there has been a shift in demand away from traditional office spaces and towards smaller spaces such as coworking locations or home offices. This could lead to increased vacancy rates and lower rent prices for office buildings and complexes as companies opt for less expensive alternatives. It will be important for landlords and property managers to stay up-to-date on changing trends in order to attract tenants and keep occupancy rates high.

Increasing Competition from Online Platforms
With so many people now relying on online platforms such as Airbnb for short-term rentals, competition between traditional rental properties and these online platforms is becoming fierce. Traditional rental properties may have difficulty competing with these platforms due to their convenience, low cost, and wide selection of choices available at any given time. To compete with these platforms, landlords must focus on providing an exceptional customer experience by staying up-to-date on technology trends such as mobile apps and digital payment options.

ESG Considerations
Environmental, social and governance (ESG) considerations are becoming increasingly important for investors in commercial real estate. Investors now expect companies to adhere to higher ESG standards when making decisions about their investments in order to ensure that they remain socially responsible. This is likely to lead to an increase in investment in properties that are energy efficient, have green roofs or use other sustainable technologies. Furthermore, investors may be more likely to invest in properties that offer affordable housing or other services that benefit communities instead of solely looking at financial returns.

Digital Economy Growth
The growth of the digital economy has had a significant impact on the commercial real estate sector as well as other sectors around the world. With more businesses transitioning online and people spending more time shopping online due to Covid-19 restrictions, demand for office space has decreased while demand for warehouses and data centers has increased significantly over the past year or so. As a result, companies must be aware of these changes when making decisions about their investments in commercial real estate and adjust accordingly if necessary.

Workforce Housing Shortages
The shortage of affordable housing across the United States is becoming a major problem for businesses as well as individuals looking for homes close enough to where they work or go school. This issue is likely to become even more pronounced over the next few years due to rising rents caused by increased demand from new entrants into cities such as San Francisco or New York City . To address this issue, many cities are introducing measures such as rent control laws or zoning ordinances that require developers to include a certain percentage of below market rate housing units when constructing new buildings.. Additionally, businesses can also work with local governments on initiatives such as tax credits or subsidies that help employees find affordable housing near their workplace.

The next few years will bring a number of changes to the commercial real estate industry that will require careful planning and strategic decision making from professionals within the field. From rising interest rates to increased competition from online platforms, keeping abreast of these major challenges will help ensure success in 2023 and beyond. Staying informed about current trends while adapting quickly when necessary can help make sure your business stays competitive in this ever-evolving landscape.

Overall, there are several major challenges facing commercial real estate professionals this year including ESG considerations, digital economy growth, workforce housing shortages and increasing investor interest in retail properties. Companies must be aware of these changes and adjust accordingly if necessary by taking advantage of initiatives like rent control ordinances or subsidies offered by local governments. Additionally, it is important for businesses to remain mindful of their ESG obligations when investing in properties so that they remain socially responsible while still generating solid financial returns from their investments. By understanding these challenges and adapting accordingly, companies can position themselves well for success no matter what comes their way this year!

All information provided has been obtained from sources deemed reliable.  However, neither Victory Real Estate Group nor any of its brokers, agents, employees, officers, directors or affiliated companies (collectively, Victory Real Estate Group and Related Parties) have made an independent investigation of the Information or the Information sources, and no warranty or representation is made by Victory Real Estate Group and Related Parties as to the accuracy of such Information. The Information is submitted subject to the possible errors or omissions, and no person or organization should rely on the Information, unless such person or organization has conducted and independent investigation to confirm the accuracy thereof.

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Ela Valenzuela
Partner Editor Victory
June 26, 2024

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