2023 presents challenges and opportunities as the commercial real estate market, economy, and innovation continue to evolve. Commercial real estate market professionals must address the disruption that will occur in 2024, develop solutions, and work to better understand the impact of these dynamic changes.
The commercial real estate market will continue to exhibit an exceptionally dynamic level of unpredictability in 2024. The main trends include:
Geopolitical instability and the vitality of global economic health
There may be a number of issues that impact the risks associated with the commercial real estate market. The real estate market is facing economic turmoil and a weak office sector, exacerbated by inflation, slowing GDP growth, high interest rates, banking stress and rising geopolitical concerns around countries such as Russia and China. ing.
hybrid work
The future of hybrid work continues to evolve with themes of flexibility, agility, productivity, and space savings. The COVID-19 pandemic has led to permanent changes in where work takes place, dramatically changing the environment of the office sector and central business districts. Employers recognize that their office space needs to be an environment where employees have motivation and real reasons to look forward to returning to the office. Otherwise, owners should start considering alternative strategies to consider repurposing aging office buildings.
Labor shortage
Everyone in nearly every field reports difficulty finding skilled, motivated, and capable workers. Labor shortages are growing for several reasons. One is the aging of baby boomers who have left the workforce in a phenomenon that has come to be known as the “Great Retirement,” and new employment trends among young professionals with unique views on the workplace.
infrastructure
Supporting a strong economy requires strong infrastructure. The country’s infrastructure is a serious concern due to the huge costs involved in repairing and upgrading aging infrastructure. The American Society of Civil Engineers (ASCE) rates U.S. infrastructure annually, and for the past 20 years it has consistently delivered below-average grades in the C and D range (the most recent in 2021 was an overall rating of C- ) report card).
Economic “perfect storm” in commercial real estate
The economic “perfect storm” developed from the convergence of the economy, interest rates, and inflation following the recent “free money” era, which ended abruptly and was followed by the Fed’s breakneck pace of rate hikes. . The federal funds rate is currently at its highest level since 2007. Owners, investors, and developers in the commercial real estate market are feeling the effects of rising costs of capital, tightening lending, and the $1.5 trillion U.S. debt maturing by the end of 2025. .
Thoughts of the end
“Real estate is an indestructible asset and continues to rise in value. It is the strongest security that human wisdom has ever created. It is the basis of all security and the only indestructible security.” — Russell Sage, American investor, railroad executive, and Whig politician from New York.
Glenn Ebersole is a registered professional engineer and director of business development at JL Architects, a Westchester-based architecture firm serving local, regional, and national clients. Contact him at gebersole@jlarchs.com or 717-575-8572.