2022 Commercial Real Estate Top Performers and 2023 Outlook

Despite the market’s uncertainty, commercial real estate performed well in 2022. With healthy balance sheets, consumer demand was significantly boosted in retail and industrial asset classes. In both sectors of the real estate market, vacancy rates fell even further than the previous year, illustrating strong demand for retail and industrial spaces in the post-pandemic period. Specifically, the retail sector experienced the most significant drop in vacancy rates to 4.2% at the end of 2022. Due to a lack of new supply, net absorption and rent price gains were substantial in the retail sector.

2023 Commercial Real Estate Outlook

However, this year will be challenging for most commercial real estate market sectors, with higher vacancy rates in the office and multifamily sectors.

After its recent record-breaking year in 2021, the multifamily sector has started to slow down in the second quarter of 2022. Demand remains solid, but net absorption dropped by 75 percentage points in 2022 compared to 2021. As a result, rent growth decelerated, and the vacancy rate increased in 2022. Due to rising borrowing costs, people may need to rent for a longer period keeping strong demand for apartment buildings. While the U.S. may skirt the recession, the multifamily sector will likely regain momentum later this year and perform better than pre-pandemic.

The future of office space is ambiguous. COVID-19 has already disrupted the “traditional office” work environment. Hybrid work is now a reality for many people, and this trend only goes one way, just like e-commerce changed the “traditional retail” sector. Thus, 2023 will be another challenging year for the office sector as this sector will continue to change to improve the occupant experience and attract more employees to return to the office. But, this may be even more difficult with older office spaces lacking modern amenities. Vacancy rates may drop even further for these office spaces.

Thanks to the rise of e-commerce during the pandemic, industrial real estate outperformed in the last couple of years. Big online retailers needed warehouses to store their products, boosting the demand for industrial spaces. Even though demand for industrial space cooled off in 2022, the industrial sector will continue to be one of the bright spots of commercial real estate in 2023. Despite the slowdown, vacancy rates will remain low, and rent growth will double due to low supply in the industrial sector.

The retail sector is expected to remain strong and perform better than pre-pandemic levels. With inflation moving down and interest rates to stabilize later this year, consumer spending power will be back this year. Specifically, growth in the brick-and-mortar stores will be driven mainly by smaller shops such as neighborhood centers. The trend is clear. Due to remote-work policies, neighborhood stores are on the rise, and this trend will continue this year. Consumers like to shop locally as these neighborhood stores offer convenience and personal interaction.

Hotel revenue dipped in 2020 due to the COVID-19 travel restrictions and self-quarantine orders, but it fully recovered in 2022. The revenue per available room (RevPAR) is 10 percent higher than the pre-pandemic level. After two years of social distancing and working from home, Americans travel again. With business and leisure time increasing, the demand for hospitality spaces will continue to grow in 2023. The year is still young.

Inflation, interest rates, supply chain, and geopolitical events are the main factors determining how commercial real estate will perform in the following months. The National Association of REALTORS® will keep you informed monthly about the developments in commercial real estate.

 

Source: 2022 Commercial Real Estate Top Performers and 2023 Outlook

https://www.creconsult.net/market-trends/2022-commercial-real-estate-top-performers-and-2023-outlook/

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2023 eXp Commercial Commercial Real Estate Symposium

REGISTER TODAY

The Commercial Real Estate Symposium will provide junior and senior agents and brokers with valuable insights on topics, including: international opportunities, capital and funding for small businesses in today’s market, how to attract investors, and much more.

Dates: April 25-26, 2023
Start Time: 9 a.m. - 4 p.m. CST
Location: eXp Commercial Campus

We look forward to seeing you in the metaverse!

Important: Please download the virtual eXp Commercial Campus prior to the event, and follow the instructions to login and create your avatar. Feel free to explore the campus before the event begins.

 

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https://www.creconsult.net/market-trends/2023-exp-commercial-commercial-real-estate-symposium/

Kankakee Reduced

Price Reduced! 23 Unit Multifamily Offering
$949,000 to $875K! | 8.25% Cap Rate | 91.3% Occupancy
Broker: Randolph Taylor | 630.474.6441 | rtaylor@creconsult.net
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2023 Demand for Apartment Buildings Will Remain Strong

Multifamily
Absorption of units in the last 12 months: 174,442
Rent growth in the last 12 months: 3.7%
Cap rate: 4.9%

Rent prices are still higher than they were a year ago, but the gains have returned to more normal levels. Rent growth dropped to the lowest level since the first quarter of 2021. Rents rose 3.7% year-over-year in the last quarter of the year compared to 5.6% and 9.2% in the previous two quarters.

As elevated prices continue to hurt consumers, fewer people can afford to cover their rent expenses, decreasing the demand for apartments. After reaching all-time lows in 2021, the vacancy rate rose significantly in Q4 2022 to 6.1%.

While rents have increased in nearly all the metro areas across the county, Sun Belt areas have experienced an even faster rent growth, including Kingsport and Knoxville in Tennessee, Fayetteville, NC, Charleston, SC, and Naples, FL.

Respectively, demand for apartment buildings remains strong in big city centers such as New York and Washington, DC. In these two areas, more than 9,000 multifamily units have been absorbed in the last 12 months ending in December.

2023 Outlook:

Rent price growth won’t likely hit the 2022’s highs. Although multifamily housing construction has slowed down, the number of apartment buildings under construction is at record highs. Thus, the completion of these homes may ease rent growth.

Nevertheless, demand for apartment buildings will remain strong, considering many buyers have already been priced out of the market. Due to rapidly rising mortgage rates, buyers need to earn more than $100,000 to afford to buy the median-priced home. However, only 15% of the renters earn that income.

Read the full report covering all commercial real estate sectors

Full Report

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Why You Should Hire a Commercial Broker

When people look for a home, one of the first things they do is hire a residential realtor. But when it comes to commercial real estate, some newer tenants and investors try to represent themselves when looking for commercial space. That’s almost always a big mistake.

In this article, we’ll look at the benefits of listing commercial real estate with a broker, how to find the best broker in your market, and six key questions to ask before hiring a commercial broker.

Benefits of Hiring a Commercial Real Estate Broker

A commercial real estate broker works with property owners and tenants to buy, sell, and lease real estate for commercial use. Compared to buying a home, where a lot of emotion is involved, a commercial agent understands that investment real estate is mainly a numbers game. The top benefits of hiring a skilled commercial real estate broker in your local market include:

• In-depth market knowledge to find the best commercial property for sale, including properties just coming to market.
• They represent buyers and sellers of commercial real estate – and tenants seeking to lease or sublease space – while always keeping the client’s best interest in mind.
• Hiring a commercial broker is cost-effective for CRE investors and tenants because the seller or landlord typically pays fees instead of the client.
• Access to commercial listing sites to quickly lease space by generating as much demand as possible from qualified tenants.
• Posting available commercial property for sale on the top commercial real estate websites ensures the property is seen quickly by as many buyers as possible.
• Networking with other commercial agents and local real estate experts helps locate hard-to-find property and allows investors and tenants to get the best deals on the market today.
• Help clients to stay objective and focused, calmly explaining and exploring all options of a commercial real estate transaction without tipping their hand to the other parties in the deal.
• Commercial real estate brokers also save clients time and money by working to find opportunistic properties to lease or invest in and hammering out the best deal by knowing what to ask for and when.

Skills to Look for in a Commercial Broker

Finding a great commercial broker is similar to looking for any other specialized service professional, such as a doctor or lawyer. Skills to look for in a commercial real estate broker include:

Expertise – Expertise in specific commercial real estate asset classes like office, retail, multifamily, industrial, or special use investments.

Experience – What they’ve done, whether representing tenants looking for space to lease or sublease or working with a landlord to lease or sell commercial property.

Network – Presence in a specific geographic area or submarket signifies that the broker has an established network of contacts and understands how deals get done and tenants and property owners work.

How to Hire a Commercial Real Estate Broker

First, determine what your specific needs are. For example, are you an investor with anchor space in a shopping center that needs to be filled, or do you own a free-standing building and seek a regional or national tenant willing to sign a triple net lease?

Next, look for a broker who only works in commercial real estate. Some agents only “dabble” in commercial estate and sell houses most of the time, which means they won’t bring value to your transaction. In some small markets, it may not be possible to find a specialty broker who only handles leasing or retail property but always look for an agent who makes their living in commercial real estate.

Third, narrow down your choices by reviewing each prospective candidate's professional designations to help choose the commercial real estate broker best for your needs. Commercial real estate practitioners with classroom and real-world experience can help clients reduce risk, enhance credibility, make the right decisions, and negotiate the best deals possible.

It also behooves you to look for brokers that are part of commercial real estate networks and organizations and hold industry certifications. Some top commercial real estate designations include Certified Commercial Investment Member (CCIM), Society of Industrial and Office Realtors (SIOR), and Certified Property Manager (CPM) from the Institute of Real Estate Management (IREM).

6 Important Questions to Ask a Commercial Real Estate Broker

Once you’ve put together your shortlist, make sure to ask these six key questions before hiring a commercial real estate broker:

1. When was the agent first licensed, and what type of continuing education is the agent required to take by the state and the employing brokerage firm?
2. How many years has the commercial agent been helping clients lease, buy, or sell commercial real estate?
3. What geographic locations does the agent specialize in, such as market or submarket, neighborhood, or corridor?
4. What type of commercial property does the broker specialize in, such as office or retail, multifamily or mixed-use, or industrial and special-use property?
5. What references can the broker provide from similar tenants or businesses to yours that the broker has recently represented?
6. For tenant brokers, is leasing or buying a better business decision based on local market trends and the amount of available space for lease?

How to Find a Commercial Broker

The commercial real estate world can be a small, tightly-knit community that can be difficult to penetrate, especially for new commercial real estate investors.

One good way to find a commercial real estate broker is to speak with tenants running a successful business in the type of commercial property you’re seeking. The tenant can connect you with their leasing agent or property manager, who can refer you to a commercial broker active in the local market.

The most successful brokers in larger commercial real estate markets usually focus on specific areas or corridors. Try driving around looking for commercial signs with the same agent name or commercial real estate firm, then contact the broker to learn more about how they work. If you like what you hear, set up a face-to-face meeting in person or with Skype or Zoom.

Remote commercial real estate investors who don’t live in the same market they invest in can use commercial real estate listing sites to find a great commercial broker. Going online to look for a commercial broker is similar to driving and looking for signs, except you can do everything online, saving time and money.

Commercial real estate brokers provide their clients with the competitive edge needed to get deals done in today’s marketplace, no matter their positioning. Tenants looking for space and buyers of the commercial property benefit from a broker’s experience and expertise, while the landlord or seller pays the commission fees. Commercial real estate sellers and landlords hire a commercial real estate broker to market and show the property, negotiate the sales transaction, and get vacant lease space filled quickly.

 

Source: Why You Should Hire a Commercial Broker | Crexi Insights

https://www.creconsult.net/market-trends/why-you-should-hire-a-commercial-broker/

10 Tips For Selling Commercial Real Estate

In 2021, the U.S. saw 91 billion dollars invested in building commercial real estate. While this is an excellent sign that the commercial real estate industry is booming, it also creates more competition for owners trying to sell.

Here are ten tips to help you get ahead of the curve to help your commercial property sell quickly.

1. Determine the Fair Market Value of Your Property

Without a professional estimate, you may be overestimating your property's value, which could deter potential buyers or leave money on the table.

Hiring an expert to perform a market value estimate is a good idea, as is gathering your market intelligence. You can find out what price other similar properties in your area are selling for. The information will be more accurate since the calculations are based on usable area, not total area. You will get a more precise overview of the price of real estate compared to your property.

2. Order Your Report Title Immediately

As soon as you know you want to sell your commercial property, call your real estate attorney and order your title. A great real estate attorney will quickly respond to your request and walk you through the steps, starting with the most complicated items. The title report can take up to 10 days to arrive, and the faster you get your title, the quicker you can sell your property.

3. Update Your Environmental Reports

If your environmental reports are more than six months old, it’s time to update them. Interested buyers want to ensure they’re not purchasing a building with potential environmental risks. So make sure your environmental reports are up-to-date, complete, and precise.

Providing an accurate report will help you in the long run because it will reduce the number of questions and doubts your potential buyer may have. Remember that these reports can take up to 21 days to arrive, so do this as quickly as possible.

4. Get All of Your Paperwork Ready

Before you list your commercial property for sale, ensure you have your paperwork ready. Not being fully prepared can deter potential buyers as they may worry about dealing with unknown issues down the road. Ensure you have your ownership papers, permits, and certifications your new buyer will need.

If you have tenants in your commercial property, you will also want to gather and organize your rent roll along with any profits and loss statements from the past two years.

Providing the buyer with a rent roll will let them know which tenants are leaving soon and which are staying for the next few years. In addition, organizing your information clearly and concisely will let your buyer know where their rental income is coming from and identify potential opportunities to increase revenues after the transaction closes.

5. Create a Service History List

Make a list of your primary service vendors, such as those dealing with window cleaning/repairs, plumbing, electrical, HVAC, elevator, fire safety, and utilities.

Include in your list extensive service history records for any repairs or replacements. Providing this information will show your buyers that you are upfront and honest while allowing them to estimate how much they need to spend on future repairs and replacements.

6. Do a Thorough Clean Out

It’s hard for a potential owner-user buyer to picture purchasing your property if it’s cluttered with unnecessary items. So go through closets, storage rooms, etc., to ensure that anything left behind by previous tenants is removed. Likewise, anything outdated or an eyesore should be removed or kept out of view.

7. List Your Property on Commercial Real Estate Websites

Commercial real estate listing websites like Crexi are a great way to promote your property and potentially sell it faster. Doing so allows you to list your property at an attractive price while broadening your chances of reaching more serious buyers. When choosing a website to list your property, consider sites that generate a lot of traffic to increase your visibility and ones that are lower cost.

8. Use Social Media To Your Advantage

If used correctly, social media can be a free way to advertise your property. Post beautiful property pictures along with helpful information about the asset. Keep an eye on your posts to see how many people are viewing them, and reach out to anyone who seems interested. Also, look at similar pages where people advertise their properties and take notes on what attracts your eye.

9. Have a Cash Price in Mind

Having a cash price in your mind can lead to faster sales with buyers who are serious about purchasing. Setting a cash price motivates potential buyers and lets them know you are serious about selling.

Be cautious of offering a cash price to a buyer who intends to finance the purchase. Financing could delay your process by one to two months as the buyer may need to go through an appraisal, loan committee, review, necessary paperwork, etc., to complete the loan.

10. Choose an Experienced Commercial Real Estate Agent

Unless you have potential buyers lined up, you should contact a commercial real estate broker to help sell your property quickly and correctly. A great commercial real estate broker can provide you with a list of active qualified buyers; tell the broker if you want to sell fast.

One way to find an agent is to ask other commercial tenants and businesses around you for recommendations. In addition, it may be helpful to ask firms in similar industries to find a broker who specializes in your market.

The Bottom Line

When selling your commercial property quickly, think like a buyer. Get word of mouth out that you’re selling and provide plenty of information and pictures. Exhaust all of your resources to reach the most people.

In addition to aggressively marketing your property for sale, you want to show that you are organized and responsible so that future buyers can feel at ease. Ensure your property looks clean and have all your paperwork on hand to keep the transaction going smoothly. The better prepared you are, the greater the odds of getting your desired price.

 

Source: 10 Tips For Selling Commercial Real Estate | Crexi Insights

https://www.creconsult.net/market-trends/10-tips-for-selling-commercial-real-estate/