The success of commercial real estate relies on a variety of factors. Likewise, outside factors can cause issues within our industry. The commercial real estate field is currently affected by inflation and interest rates, labor issues, and business travel.
Inflation and Interest Rates
With rising inflation and interest rates, we may see a decline in commercial real estate projects. The issue is that high-interest rates cause higher borrowing costs, which decreases demand from businesses and investors. Inflation rates are high right now due to shortages in commodities. However, in the long term, it’s likely that inflation rates will fall.
Due to COVID-19, work conditions have changed dramatically. With many companies allowing employees to work from home or at the office, the need for office space has decreased significantly. Likewise, the labor shortage has left many businesses struggling to find help. The combination of working from home and the labor shortage has caused the office sector to lag behind. While this could threaten CRE, other sectors have improved to counter this issue. For instance, the industrial sector is thriving. The retail industry is also recovering as well. Overall, the price of rent is rising in all commercial sectors.
While we’ve seen an increase in leisure travel since COVID-19, business travel is still down from previous years. Many business conventions and meetings are taking place online. This impacts commercial real estate properties like entertainment venues, restaurants, and hotels that target business travelers. Face-to-face business interactions are more successful, so business travel should increase through the next year.
The commercial real estate field has faced all kinds of issues throughout the years but continues to thrive. We’re celebrating our 35th Anniversary and are prepared to face whatever challenges lie ahead!