The commercial real estate market is always in flux with new trends and developments emerging all the time. As we look ahead to 2023, there are several key trends we’ve identified that we feel are poised to shape the market this year and beyond.
E-Commerce Continues To Rise
Our first major trend to keep an eye on that is expected to continue to be a behemoth in the commercial real estate market is the rise of e-commerce.
With more and more consumers turning to the internet for their shopping needs, especially post-pandemic, the demand for warehouse and distribution space is going to continue to increase. This trend is already well underway with e-commerce giants like Amazon snapping up large warehouses and distribution centers around the country.
Flex space, which is a blend of office and warehouse or distribution, will also see further demand from smaller businesses since there hasn’t been enough of this product developed in the last economic cycle.
On the flipside, many brick-and-mortar stores have struggled in recent years because of the rise of online shopping and retail investors may need to adapt by seeking new types of tenants or repurposing their spaces for non-retail uses.
Coworking And Adaptable Office Space
The second trend that we expect to further have an impact on the commercial real estate market in 2023 is the continued popularity of coworking spaces and demand for adaptable office space.
Coworking spaces offer a flexible and cost-effective alternative to traditional office space and they are becoming increasingly popular among small businesses, entrepreneurs, and freelancers. While many think office real estate is dead, that couldn’t be further from the truth. It is simply changing to fit our new workforce demands much like retail has shifted in the last decade.
With more people working remotely or on flexible work schedules, there is a growing need for office space that is agile enough to accommodate a variety of work styles and needs.
This trend is likely to grow and evolve as more and more people opt for the freedom and flexibility of self-employment or aim to keep their business costs down while working in an amenity-rich, entrepreneurial environment.
The Flock To The Urban Core
Another trend, and one that is certainly top on my list, that we will hear about more and more in 2023 is urbanization.
As more and more people move to cities in search of work and opportunities, the demand for commercial and residential space in urban areas is only going to increase. This trend is already well underway, with many cities, like Nashville, seeing a surge in the construction of new commercial and residential buildings in recent years.
Urbanization provides many benefits to residents, businesses, and cities, alike, because it helps increase walkability, livability, and convenience. Businesses will benefit from the mixed-use aspect of these developments since the buildings will have a built-in clientele from hotels, offices, or residences and vice versa, leading to demand on all fronts.
Healthcare And Senior / Assisted Living
The healthcare sector is another aspect of the commercial real estate market that we anticipate to see strong growth this year.
With an aging Boomer population and an increasing focus on preventative care, the demand for medical office space, as well as senior and assisted living, is on the rise.
This trend is likely to be even more significant in urban areas, where a large percentage of the population is concentrated, and within the neighborhoods where this aging population already lives since they often prefer to age in-place instead of relocating somewhere new.
Technology, or “prop-tech” is another rapidly evolving side of commercial real estate, which we all know has been trapped in the 1980s for far too long. Especially when compared to its residential counterpart.
With the proliferation of smart devices and the increasing reliance on the internet, we will see more demand for data centers and other tech-focused commercial properties, as well as tech-enabled properties.
One such example would be the implementation of artificially intelligent building systems. AI is only in the infancy of its use here, but investors are already utilizing it to predict HVAC demand to lower their utility costs. The potential here is massive.
While this trend is more likely to be found in cities with strong tech sectors, such as Silicon Valley and Seattle, demand is growing across the country because of the many data points and cost-cutting benefits it can bring.
Sustainability And ESG
Sustainability has been trending for years, especially since the rise of ESG (environmental, social, and governance) around 2020.
As more and more businesses and organizations prioritize environmental concerns, the demand for green and sustainable commercial properties is only going to increase. In fact, there are many family offices, private equity groups, and hedge funds that are only directing funds towards projects that check these boxes.
Urban areas, where the environmental impact of commercial development is more pronounced, will see the majority of these trends but even farmland, whose owners are often looking to decrease its costs and environmental impact, is participating through making their water and other outputs more efficient.
Stay Away From Single-Use Property
Somewhat inline with urbanization, mixed-use development is also on the rise.
Mixed-use developments combine residential and commercial space into a single development, which is a far better way to attain the highest and best use for any property. They are becoming increasingly popular as a way to create more vibrant and livable urban environments and they can also have a positive impact on affordability for both businesses and residents, as well as lessen the strain on local infrastructure and traffic.
I also feel like many urban environments, especially those without a substantial public transit system will begin to develop more into a concentrated “node system” instead of the traditional hub and spoke city sprawl that we are accustomed to.
As traffic and drive-times increase, people want to spend more time within their neighborhoods where they can work, live, and play without having to spend time commuting.
What Trends Do You Expect To See?
Overall, the commercial real estate market in 2023 is expected to be shaped by a number of key trends, including the rise of e-commerce, the continued demand for coworking spaces, the shift towards urbanization, the increasing demand for healthcare space, the rise of technology, the push towards sustainability, and the trend towards mixed-use development.
And we didn’t even mention how interest rates, which rose significantly in the 2nd half of 2022, will impact development in the years to come. These trends are likely to have a major impact on the market and will be worth keeping an eye on for anyone interested in commercial real estate.
What trends do you think will dominate commercial real estate in 2023?
Source: The Cauble Group