We wrote about commercial real estate indicators at the end of last year. At that time, there was concern about interest rates, inflation, recession fears, falling prices and other issues. We did not predict that the federal government would have to bail out banks, but it did step in when Silicon Valley Bank in California and Signature Bank in New York collapsed during runs.
The $20 trillion commercial real estate industry has benefitted from low-interest rates and easy credit. Now banks have been hit hard by the Fed’s raising interest rates to manage inflation, so much so that some banks are not in a position to loan money at all or cannot do it at a low-interest rate. This is especially true for smaller regional banks that often have a higher concentration of commercial real estate loans.
Office and retail down, housing and industrial up
We spoke earlier about how multi-family housing was still looking strong, and now industrial property is similarly looking relatively strong. Conversely, office building and retail occupancy have yet to return from the pandemic due to companies closing or embracing a work-from-home format. Lack of occupancy means declining value for these properties.
Unsure about asset valuation in a changing landscape
This all means that the commercial real estate market is in upheaval. There are often gaps between asking prices and offer when there is uncertainty. This and funding problems add up to fewer closings in the early months of 2023.
Seize those opportunities
Uncertain macroeconomics will continue to impact the industry here in Texas and elsewhere, but there are opportunities out there for individual investors, partnerships and corporations. Working with an attorney who understands the commercial real estate market and its economics can offer substantial benefits like structuring more innovative deals, finding funding to close them, and providing useful insight as new issues arise in 2023.