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What is the future of commercial real estate after COVID?

The Future Outlook of Commercial Real Estate Properties

The commercial real estate (CRE) sector is roaring back to life.

At the start of the pandemic, as people locked down in place, maintaining building occupancy became a growing concern for owners and property managers. Stores, shopping malls, restaurants, and offices emptied with astonishing swiftness, and many real estate investors feared a prolonged and devastating economic downturn. To adapt, property owners repurposed their spaces, creating new opportunities to keep their buildings operational in an uncertain landscape.

The pandemic, as well as the economic, social, and digital disruptions that came with it, have changed how commercial property is developed, financed, and utilized. These changes present new challenges, uncertainties, and opportunities that will define the sector in the long term.

Today, the CRE industry is positioned at the forefront of recovery. That said, some industrial sectors are forever changed. But one thing is for sure: there’s a need to build flexibility and the capacity to adapt quickly to market changes in investment properties.

Now, let’s look at the changes that will define the commercial real estate sector in a post-pandemic world. What does commercial real estate future investing look like?

1. The Rise of New Lease Structures

Considering the shift to remote work, it’s clear that office spaces will have to adapt to a changing work culture. As such, it’s not surprising that many tenants are looking for more flexible and short-term lease structures. The office sector must change with companies’ new ways of working by changing the design, build, functionality, and management of office real estate.

Property owners are repurposing office buildings to allow for a more hybrid work culture. This involves investing in technologies that allow for convenient conferencing and creating an environment flexible enough to cater to the needs of the gig economy. Other solutions include enhanced amenities, more outdoor spaces, and the creation of co-working and flexible office spaces.

2. Vacation and Business Travel are Recovering

Hotel and motel real estate has demonstrated remarkable resilience following the drastic and immediate shock of the COVID-19 pandemic. Lockdown fatigue has set in, and many are looking to escape their homes for some leisure travel. The hospitality industry is expected to register solid returns in the coming years.

Business travel is slowly picking up but is unlikely to reach or even near pre-COVID levels. Trips to visit clients and network at conferences will aid the profitability of hotel real estate though markets heavily dependent on business or group demand will recover at a slower rate compared to those focused on leisure demand.

Still, the sector will have to navigate operational difficulties brought on by rising inflation and continuing supply chain disruptions.

3. Climate Risk and Carbon Emission Laws will Impact Leasing

Before the pandemic, many CRE sectors were in the early stages of addressing climate risk. Where commercial real estate is concerned, climate risks from massive hurricanes and flooding to wildfires are making it more difficult to manage the costs and condition of properties. Now, in the wake of the pandemic, there’s a renewed interest in the sustainability and resilience of commercial properties.

Many investors are introducing climate stress tests to their portfolios as an asset management strategy. The challenge is to determine which commercial assets will be affected by climate change risks, in what ways, and how to respond to them. Owners and developers, on the other hand, are focused on reducing the carbon footprint of their buildings. It’s now imperative for investors to work with brokers that understand climate-related impacts on asset performance.

4. Real Estate as a Service

COVID-19 accelerated the shift towards digital transformation. Consequently, real estate is shifting from a product to a system and service. It’s a new business model that’s set to revolutionize commercial real estate, creating opportunities that will drive the industry forward. In a post-pandemic world, real estate-as-a-service (REaaS) provides the opportunity to fill underutilized office and retail spaces, providing investors with additional revenue.

REaaS generates revenue based on improved customer experiences rather than leased square footage. Where the adage for real estate value was once location, location, location; today, it’s changing to location, insights, and experience. Real estate-as-a-service is about providing access to commercial space that can be tailored to meet the needs of different clients. It gives tenants the options to flexibly expand access to property and enables the commercial real estate sector to buffer against uncertain market conditions.

The Evolved Real Estate Value Proposition

Investment opportunities remain strong in commercial real estate. For instance, the demand for logistics, industrial, data centers, and multifamily developments increased during the pandemic. Sectors that were negatively affected, such as hotel, office, and retail, are adapting to a changing world.

As such, it’s important to partner with a commercial realtor who utilizes data insights to stay ahead of the trends in such a transformative time for the CRE industry.

Contact Anthony Maccaroni for Commercial Real Estate Future Investing

With the changes present in the commercial real estate market after the COVID-19 pandemic, it’s more important than ever to work with an agent when looking to invest in the market. Anthony Maccaroni has decades of experience working with clients like you find and invest in commercial properties in Pinellas County and Clearwater, Florida.

Anthony has access to a variety of reporting tools and vendors that provide a unique insight into every available property, and even some not listed on the market.

Contact Anthony Maccaroni today to schedule a free consultation.