The commercial real estate market is facing a series of challenges, including the rise in office vacancies, which has caused a drop in property prices. San Francisco, for example, had a 9% increase in vacancy rate post-pandemic, leading to a 13% drop in property prices compared to the previous year. It is predicted that prices could still drop by 20-30%. Additionally, employees are spending 25-35% less time in the office than before the pandemic, which translates into a 15% decrease in office space demand per employee.
However, institutional investors know that commercial real estate is strong, with the exception of the office sector. Buying opportunities could arise from distress or dislocation in the market. While several factors are impacting the commercial real estate market, such as market uncertainty, rising interest rates, inflation, and shifting investment priorities, there are opportunities for those willing to embrace the risk.
The report highlights that there are many different types of commercial real estate, including retail, multifamily, office, industrial, hotels/hospitality, land, mixed-use, and special purpose. Data centers and industrial real estate are expected to be the most resilient in the coming year, with the hotel sector continuing to recover from pandemic restrictions, and office occupancy expected to jump by 10%.