The commercial real estate industry, like many other industries, is in for a rough 2023. Sky-high inflation and mass layoffs are affecting our ability to make small and/or necessary purchases. Commercial real estate developers need to adapt to these changes to keep their heads above water.
With that said, the biggest issue facing commercial real estate won’t go away in 2024, 2027, or even the next decade. That’s why it’s important for all businesses to develop a future mindset.
Agents and developers alike need to focus on key business areas to stay alive, or even scale, during tough times.
Here are 5 challenges commercial real estate needs to tackle right away.
As Northspyre explains it in their guide to commercial real estate technology, the industry is in desperate need of innovation. Labor shortages can be minimized via technology, but only proper working conditions, fair pay, and benefits can bring the Great Resignation to an end.
Technology can even pose a threat to a business’s bottom line if they don’t take the proper cybersecurity precautions. Since commercial real estate is slow to adapt in this area, there’s a high possibility the industry will see more hacking attempts or successes that cost millions.
Even if commercial real estate is guarded against labor shortages and cybersecurity risks, they still need to navigate inflation, interest rates, and geopolitical risks. There simply aren't enough people buying real estate, and those that can buy it make the buying pool smaller via high rent.
Solving this problem isn’t easy, but countries like Canada have tried to prevent residential and commercial real estate hikes (and a burst bubble) by enacting foreign homebuyer bans. Still, these regulations can’t prevent the war in Ukraine from affecting inflation and interest rates.
Supply chain disruptions didn’t go away after the pandemic, and there’s a chance it’ll get much worse in the future. The floods in Pakistan and droughts in Texas caused by extreme weather conditions are a precursor of what’s to come: a world where materials are hard to come by.
High material and shipment costs are going to become the norm, meaning commercial real estate will have to find suppliers that make everything near their city, state, or country. Most companies and FRP manufacturers will have to spend more to keep up with customer demands and stay competitive.
Remote and hybrid work isn’t going anywhere, making it foolish to fight against it. Workers can get city wages while living in a town with a lower cost of living, making it a win-win for both the employer and employee. With remote/hybrid work, employers don’t have to rent out offices.
Utility costs are a big reason for the switch to a smaller, or home office. While people who work from home have to pay more in utility costs, it isn’t by much. Plus, they can write off their energy use on their taxes. The real estate industry needs to adjust to this new normal to be successful.
A predictable and clear regulatory environment is preferred, but the Columbus, Ohio commercial real estate industry is unlikely to see stability any time soon. Governments around the globe are already passing laws regarding the performance and disclosure of commercial real estate assets.
This is especially true in the ESG (environmental, social, and governance) criteria. It’s possible that certain commercial properties will have to make expensive changes if they produce too many carbon emissions. Therefore, investing in green real estate is likely the smartest option for commercial real estate developers.
