For commercial real estate investors and developers, understanding what the future holds in store for commercial real estate supply and demand trends is critical. Is there going to be sufficient demand once your project is ready to launch? Or perhaps supply chain disruptions will impact vacancy rates or rent levels.
Add these factors together, and they can not only tell you something about your property’s current value but also how much income you might be able to generate from it. Simply put, too much supply and no demand, and there’s not much sense in proceeding. But when supply is limited, and demand is on the rise, your timing may be perfect. Here are some commercial real estate supply and demand trends that help put you on the right track.
1. Inflationary Pressures
The latest U.S. inflation rate is 6.04%, which is an improvement over the 7.87% we experienced last year. These rising costs can make building materials and commercial properties for some investors unaffordable.
2. Interest Rates
On March 22, the Federal Reserve raised interest rates (again) by 25 basis points, bringing the benchmark federal funds rate to a range of 4.75% to 5%. While we haven’t seen these interest rate levels since 2008, the goal of the policy is to reign in inflation. Also, the benefit for multifamily investors is that renters may decide to remain in their units longer instead of purchasing.
3. Geopolitical Issues
Tensions with China, the war in Ukraine, and sanctions on Russia are just a few geopolitical issues that have widespread economic implications. These ongoing problems have driven up prices for energy and raw materials.
4. Regulatory Environment
Commercial real estate owners and investors must also consider the cost of environmental, social, and governnance (ESG) compliance. This includes any tax implications of various ESG initiatives.
5. Sub-Asset Classes
Not every asset class in commercial real estate will perform alike. In some cases, the market for one might be high, while it’s low for another. Here are a few major asset classes and current trends to watch:
- Industrial — As eCommerce growth has exploded over the past several years, so has the demand for industrial space and warehouses.
- Office — According to Moody’s Analytics, office spaces have had their challenges thanks to the rise of remote work. But, depending on the location and amenities, these properties can be competitive.
- Retail — Retail is another category that can be in high demand, depending on the location. Even with online sales growth, people still want brick-and-mortar locations for certain products and services.
- Multifamily — Multifamily properties are some of the highest-performing of all asset classes. They continue to have low vacancy rates, and investors are achieving significant returns on their investments.
Commercial Real Estate Supply and Demand Are Always Changing
Demand for commercial real estate, whether for things like manufacturing, logistics, retail, or office space, is a constantly-changing situation that relies on a variety of market influences. Sure you can watch the national market to get a feel for the general supply and demand forecast. But it’s also important to stay focused on local trends to give you a more complete view of what lies ahead.
If you’re thinking about buying commercial real estate in the Charleston, SC area, Caldwell Commercial Real Estate wants to be your trusted partner. Our team of qualified realtors and property managers has over 80 years of combined experience in the industry, and we know the local market. Contact us today to learn more about our services.