Commercial Real Estate Market: In today’s day and age, the amount of telecommuting and flexibility and gone up enormously thanks to the power of the internet. We have seen how that has impacted the Real Estate Market. But how has that impacted the Commercial Real Estate Market?
In Washington D.C., the first year of Covid saw a really big hit in Commercial Space with Real Estate Properties coming down and the amount of telecommuting drastically going up. However, in 2021, thanks to low-interest rates, Commercial Properties had seen a great uptick in sales going from nearly seventy million in 2020 to one hundred fourteen million in 2021.
A huge part of this is thanks to the new trend in ‘mixed-use properties. According to Rocket mortgage, a mixed-use property is a type of Real Estate Property that combines residential and commercial properties together. Imagine waking up in bed, going downstairs and there’s a planet fitness right there available for you to use. That classifies as a mixed-use property. This is great for investors because the residential investment feeds revenues to the commercial side, while the commercial part of the building appeases the tenants (or owners) by having a great reason to live in the building.
Most residents at mixed-use properties live in a city area and close to metros. Since Commercial Properties have seen a downtick in sales with the mindset of remote jobs, to substitute or adjust, there has been a substantially more amount of mixed-use properties. Take Washington D.C. for example:
Before Covid, they had only seen a total of six million dollars in sales in mixed-use properties. In 2021, they nearly cracked fifty million. Meanwhile, other segments such as retail, services, and office, all decreased in the number of units sold as well as the sales amount.
Others are seeing Commercial sales decreasing in 2023 with the rise in interest rates, but with an adjustment to the market with inflation and the property types, can’t it even out only to pick back up?
Although telecommuting has picked up and a lot of companies still offer hybrid roles with the option to work from home, there are other companies such as Twitter that are having their employees return to work. Additionally, the Retail space will see a change with traffic only increasing into 2023.
According to the Commercial Price Index per Green Street, prices are down 13% so far in 2022. There are two ways to approach it as far as the Commercial Real Estate Market. You can take it as a recession and prices will continue to collapse, it is just as a shift in the market.
The amount of mixed-use properties has become a new trend. By knowing your area, the city, or the county and being able to convert the property over to a mixed-use property, you can take complete advantage of the situation. A great example is South Alex in Alexandria, VA located in Northern Virginia. This property was formally a commercial building comprised of several commercial units including a grocery store. Now it is comprised 400 Class A apartment units and several commercial units including an Aldi.
The main type of properties that have been suffering in the Commercial space is offices. They would have long leases with companies, however, with the change in the workspace atmosphere, it has become much more difficult to retain commercial tenants.
Whenever you have commercial tenants, you also must be careful about the lease structure. There’s something known as a Gross Lease, Triple Net Lease, and other types of Commercial Leases.
In conclusion, there are opportunities in the Commercial Real Estate space, but you must know the right channels. Have you ever wondered how similar commercial loans are to Residential Real Estate loans?