This year has been a challenging year for the commercial real estate market due to rising interest rates, economic uncertainty, and increased real estate costs.
Interest rates will have the biggest impact on the real estate market in 2023, leaving many investors on the sidelines. Investors found it very difficult to secure good deals due to high borrowing costs. The future of interest rates remains uncertain. However, many economists expect the US Federal Reserve to end its rate hikes and expect them to cut rates in early 2024.
South Florida’s office sector was strong as many companies moved south. Citadel founder Ken Griffin said Miami “represents the future of America” and suggested the city could one day replace New York as a financial center. “I think Miami represents the future of America,” he said, adding that Florida’s pro-business political environment is conducive to growth.
Throughout 2023, demand for Class A office space remained high, while vacancy rates were high for older Class B and C offices. The industrial sector continued to perform well, particularly in cold storage facilities. Although industrials are showing signs of softening, the sector’s fundamentals remain strong. Retail will emerge as a major player in 2024, according to Ermengardo Jabir, senior economist at Moody’s Analytics. He said that while e-commerce continues to grow, it only accounts for about 15% of total retail, leaving plenty of room for brick-and-mortar stores.
Although rental growth has slowed, multifamily properties continue to perform well. High interest rates keep mortgage costs high, putting pressure on prices for homebuyers. This will maintain demand for multifamily housing.
In 2024, artificial intelligence will continue to revolutionize and transform commercial real estate. AI allows investors to process the financial data of their trades and gain valuable insights to help make strategic decisions.
Another notable issue is the need for electric vehicle (EV) charging stations. Growth in EVs has exceeded expectations, creating a need to build charging stations to meet increased demand. This has a variety of implications for property owners. Offices, retail stores, and apartment buildings will need to add EV infrastructure. Shopping centers and supermarkets are installing more charging stations and, in some cases, offering complementary charging to attract customers. One challenge that property owners may experience is that some locations have insufficient energy capacity to add charging stations. It may take months for the power company to provide more power to your site.
Economist KC Conway predicts people will continue to move inland to secondary and tertiary markets such as Georgia, Tennessee and the Carolinas. These growing markets enjoy good fundamentals and, most importantly, access to affordable housing and an affordable workforce.
In 2024, commercial real estate will continue to recalibrate in all areas. Loan delinquency may occur in some markets as the loan approaches maturity. Many property owners are facing cash flow pressure as rents are increasing by single digits while expenses are increasing by double digits. Amid the uncertainty, 2024 presents an opportunity for cash buyers in particular to move quickly and obtain better terms on their asset purchases.
Fernando Echeverri is a broker specializing in commercial investment real estate and works with Great Properties International in Key Biscayne. fe@kbrealtor.com or call (305) 458-6101