The Top Commercial Real Estate Investing Trends for 2023 and Beyond

Upward view of skyscrapers

Savvy investors are consistently watching world markets and global economic cycles to inform their investment decisions. For those wondering whether or not now is a good time to invest in the commercial real estate sector, this article provides comprehensive information to help inform your decisions.

An Overview of 2022 So Far

Even with an increase in interest rates and global market volatility; commercial real estate has had a successful year. Real estate predictions for the coming year can be summarized in one word: resilience. Despite a multi-year pandemic, geopolitical unrest, and supply chain barriers, the US continues to boast an expanding commercial real estate sector. 2022 has surprised many in that countless markets across the country saw explosive growth. By comparison, 2023 is expected to cool but not freeze the market. For many investors, this is a welcomed opportunity to recalibrate, and thoughtfully plan future investments.

An Industry-by-Industry Glance into the Future

While no one can predict the future, there are clear patterns happening across industries that shed light on what markets might do in the years ahead. Here’s a snapshot of how industries are bracing for a strong future.

Hospitality Bounces Back

New construction for Hospitality and Industrial buildings have had a promising revitalization this year as the world continues to rebuild from Covid-19. 2023 looks like it will continue to show growth. This is largely due to pent up desire to travel, and therefore increased hotel and upscale lodging reservations.

view of apartment buildings with mountains in the background
Telluride, Colorado small town Mountain Village in summer 2019 with view of San Juan Mountains and modern resort lodge apartment condo architecture

Many hospitality investors have also capitalized on the changing trends related to travel and leisure since the pandemic including the increased consumer demand for rural vacation spots, beach and mountain themed destinations, and hotel/motel stays with contactless technology for COVID safety.

Housing Remains Strong

Multifamily housing is another sector that continues to host sound investment opportunities. The demand for housing, from luxury townhomes to low-income and accessible housing outweighs supply throughout the country. Creative investors may find lucrative returns when focusing on non-traditional housing options like adaptive re-use of old units, affordable housing like modular construction, and student/senior housing.

Land Development: a Versatile Investment

The National Agricultural Statistics Service cites that the average price per acre for farmland jumped over 11% in 2022. Other raw land development prices vary widely across the country, but have increased around 7% over the past couple of years, according to the National Association of Realtors. In short, the real estate market outlook for land development looks promising.

The Future of Retail

The success of retail spaces depends largely on their format. Strip malls in cities and large towns continue to offer consumers convenience and accessibility and are often financially solvent. Traditional indoor malls on the other hand have been struggling for years to keep up with online retailers.

However, savvy investors would benefit from considering asset repositioning with shopping malls. Examples of this include transforming malls into anything from affordable housing to warehouse and fulfillment centers. A silver lining of the COVID-19 pandemic for commercial builders is that the increase in e-commerce has created a nationwide demand for warehouses/distribution centers. These locations house and palletize goods prior to delivery to consumers. 

One commercial sector that will be slower to bounce back, and will undeniably experience continued transformation is office and large business construction.

The Covid-19 pandemic irrevocably altered workplace infrastructure needs and will likely take another couple of years to settle on a clear picture of demand. Just because this sector may recover slower than other commercial sectors does not mean investors should count out office space entirely.

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Alley with office buildings in modern Budapest area

Instead, examine the geographic market you’re interested in to see current office vacancy rates, explore whether or not new businesses are seeking to set up headquarters or offices in your area, and consider construction of office space that is easily convertible to other types of commercial use.

How Supply Chains Will Adapt and Improve

One of the primary causes of market uncertainty and hesitancy amongst commercial investors can be boiled down to supply chain issues.

It’s no secret that massive barriers in the transportation of goods across the globe have created slow-downs and cost increases. COVID-19 and geopolitical conflict have exacerbated these issues. So what does the future look like?

According to a survey conducted with 233 Procurement Executives this year, 44% percent of them are confident that the supply chain crisis will notably improve by the end of 2023. Furthermore, logistics leaders with modernized sourcing technology claim that using advanced logistics technology like AI is the most important factor to set them up for business success in today’s markets.

In essence, the past 2-3 years have transformed the supply chain landscape and have forced procurement and logistics sectors to prioritize modernized sourcing technology. Investors can breathe easy knowing that in the next 12 months, the current supply chain barriers will likely be alleviated.

A Look into Construction Costs in 2023

Investors are aware that construction costs increased in 2022, and many people believe they will continue to rise in 2023. To better understand why this is happening, it’s important to acknowledge the widespread labor shortages that many companies are experiencing. Similarly, inflation and higher interest rates slow construction growth overall.

Nonetheless, new construction is by no means halting. Rates of construction are measured by the Architecture Building Index (ABI), and they cite that in the past year, the ABI score was on average, 55 or higher which denotes positive and healthy growth. The ABI index also helps predict future market trends, and 2022’s consistency bodes well for 2023.

Bracing For The Future

Guided by the information above, investors can focus on researching different markets across the country to determine which pockets are the strongest. Commercial real estate investing over the next 5 years will undoubtedly see ebbs and flows. As markets flow, one of the most reliable tools for successful real estate investing is partnering with a capital firm that is experienced, trustworthy and client-minded.

Finally, history has shown us time and time again that while it’s normal to expect volatility and change, commercial real estate investing can often result in lucrative returns. With such a broad array of strategic commercial options, the future of commercial real estate is bright.

Are you ready to invest? Contact the market experts at Broadmark Realty Capital.

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