For career investors who are interested in continuing to stock their portfolio with reliable, consistent properties that perform well and – like all other real estate – appreciate in value over time while building equity, commercial properties are a natural part of that equation. Everybody needs to get their hair cut, shop for groceries, and go out to restaurants and those institutions need reliable, set locations to run their services. Communities thrive when these commercial spaces thrive. So, it’s only natural that you’d be inclined to invest in the shelter those businesses reside in. All signs point to this being a smart, sound investment in commercial real estate. But, what you need to keep in mind as a smart investor is the climate – meaning this moment in time – that you’re investing in.
While your intentions may be strictly personal financial gain, there’s no denying the ripple effect that any investment has on the world we live in in both the micro and macro sense. The trends that commercial real estate are responding to are not purely economic. The benefits as well as the forces working against tried and true commercial real estate investment opportunities are largely the influence of the culture at large. The consequences of living in the time that we do will have ripple effects in the world of real estate and as a smart investor, you need to be primed and ready to ride the waves of what’s to come with grace and agility.
There’s a new year on the horizon and with it comes the possibility of paths not taken and opportunities that may present themselves, which is as exciting as it is terrifying if you don’t know what’s to come. As with anything, nothing is forever, but at the present time, these are the two most prevalent commercial real estate trends to be mindful of as we move forward into the new year.
1. WFH -vs- Office
Do with this information what you will, but as the world adapts to living with Covid-19 in the long term, office spaces that were previously shut down at the height of the pandemic are incorporating hybrid schedules with their employees if not requiring them to return to the office full time. However, that isn’t necessarily the case across the board according to the US Census. It’ll be important to watch how the battle unfolds in regards to the in office versus work from home debate. Depending on how this debate shakes out among the various employment sectors, it will be important to keep track on how greatly it will impact vacancy rate forecasts and pricing.
The increase in vacancies might either incentivize or deter you from investing in commercial office spaces. It’s either an incredible opportunity to cash in when the demand is low and banking on the natural pendulum swing in the other direction when centralized working at a singular location becomes a cultural necessity again, but that’s a matter of personal philosophy and your individual risk barometer. But, it’s necessary for me to point out that working from home has gone from a side effect of the global shut down in 2020 and is now seen as a distinct benefit that prospective employees are actively seeking out in new job offers, according to Forbes. While you respond to the times, so are businesses. This is definitely something to keep your eye on to see where it trends.
Do you want to take a risk on office spaces or not? Where’s the need for CRE spaces if not in physical office spaces? What was one of the most quotidien and safe CRE purchases is swiftly becoming something more speculative and risky, which is what makes this a key trend to keep abreast of.
2. Affordable Housing and the “Build Back Better” Bill
As with most bills, it will be important to pay attention to what surprises are tucked into the pages of Build Back Better; furthermore, will it have enough juice to actually impact the housing shortages across the nation? By and large the benefits of the Build Back Better bill are designed to deliver for middle class Americans and according to the White House, it’s designed to help reverse the massive tax cut the very largest corporations and individuals were given in 2017 by the Trump administration and return the equity to a larger amount of people to hopefully elevate their relative quality of life. No one making less than $400K per year will be affected by the BBB proposed increase in taxes.
Depending on where you fall on that tax bracket, you can either be helped or hurt by this bill. But, regardless of your current economic status, nothing is forever. Like they said, the BBB bill is designed to counteract a policy by a president who is no longer presiding over our federal government. Biden won’t be president forever. While there’s assurances from Congress that these policies will be protected from a future president coming in and stopping it so that the full benefit from this bill can be appreciated, this is just one of many factors influencing the equity that’s available as well as the equity you’ll be held accountable for when it comes to your federal taxes.
The most recent update on the Build Back Better bill is that it’s been through negotiations after passing the House and now going under the name the Inflation Reduction Act of 2022 which passed both the House and the Senate on August 12, 2022 and includes several protections and assurances covering climate change, childcare, and medical expenses. It doesn’t make any mention of commercial real estate, but to reiterate a point: these trends are a reflection of the culture. So, given that information, with the childcare provisions made in this bill, would you want to invest in a commercial space to be used as a preschool? Is this something that your community is in need of?
Nothing will influence your decision to invest in CRE properties like watching these two trends shake out over the course of 2023. Your investment will hopefully last for years, which is longer than any trend cycle or presidential term and as with anything, the only thing you can do is make the best decisions possible with the information you have available to you, but making sure you’re tracking the most influential pieces of information possible will set you apart from the rest of the pack.