Between March 2022 and May 2023, the The Fed raised interest rates 10 consecutive times. Rates have risen at the fastest pace in decades and investors are taking time to adjust. Many commercial real estate owners are still paying rates lower than current levels, so refinancing activity has slowed. It is not clear if rates will continue to rise or if the Federal Reserve will change course in the second half of the year. This leaves investors with a familiar feeling: uncertainty.
Commercial Real Estate Trends Across All Asset Classes
While the future of the office is unclear, the commercial real estate sector has remained resilient in the first half of 2023.
- Multifamily rental costs rise more slowly: Multi-family properties continue to go from strength to strength. The national vacancy rate for multi-family housing was 4.5% at the end of 2022, according to Moody’s Analytics, even as the rate of rent growth fell. Vacancy rates vary widely between metropolitan areas, but the national average vacancy rate is 3.9% in April.
- Affordable Housing Increase: The country’s affordable housing supply continues to lag far behind demand. Going forward, a multifaceted approach to increasing housing supply is essential. Efforts may include finding creative ways to preserve, build and finance affordable housing—the primary focus of the company’s Capital Solutions group—and working with public entities to create zoning variances that allow for higher density in residential areas.
- The strength of retail: electronic commerce accounts for about 15% of retailBut that doesn’t mean consumers can get everything online. There are still services that favor or even require face-to-face visits. For example, visits to the nail salon, barbershop, and sports bar remain standard.
- Industrial may be stabilizing: Driven by e-commerce and a all-on-demand economyThe industry has been booming for years. While the asset class remains healthy, it may be starting to weaken. The warehouse and distribution space vacancy rate was 4.1% during the second half of 2022, a record low, as the rate has steadily declined every quarter since the end of 2020. The rate increased 10 basis points in the first quarter of 2023 to 4.2%.
- Office space is still up in the air: Remote and hybrid work have greatly reduced the demand for office space. Still, Class A properties are doing well. Office properties with leases of 10 years or more may withstand market correction. But Class B and C office buildings, especially those located on shorter leases outside of prime locations, face challenges as the workplace evolves.
Opportunities in commercial real estate
Despite the economic uncertainty, commercial real estate investors can take advantage of several opportunities in the coming months.
JPMorgan Chase is a licensed lending agency that offers affordable, market-rate multi-family financing through Fannie Mae® and Freddie Mac. Our agency loans The team will review options with multi-family property investors based on their goals, such as 10-year or longer fixed-rate terms on a 30-year amortizing loan.
Our Business Leaders Insights for 2023: Commercial Real Estate highlighted the main problems that increase costs for the industry. Among them: the rising cost of energy, labor and raw materials, as well as stagnant supply chains. Proptech technology, including digital marketing tools and smart buildings, can help commercial real estate owners and investors reduce inefficiencies to reduce costs.
Rent payment technology
For years, many property owners and operators have relied on paper and manual rent payment processes. These processes can be time consuming and leave companies vulnerable to fraud. Digital rent payment solutions it can help property managers streamline operations and meet the needs of residents.