ORLANDO (November 12, 2022) – Although commercial real estate prices may see a slight decline nationwide, strong job growth will continue to drive demand in many markets, according to the Chief Economist. of the NAR, Lawrence Yun.
Yun joined other commercial real estate experts today at 2022 NAR NXT, the Realtor® experiencein Orlando, Florida to discuss economic trends and issues affecting the commercial real estate industry.
“Across the country, we’re starting to see some decline in commercial valuation values,” Yun said. “Cap rates simply cannot match higher borrowing costs, especially among people who need to refinance their properties. However, strong job growth is supporting prices in many markets. “
Yun explained that the recent spike in interest rates, combined with high borrowing rates, forced capitalization rates higher and led to a downward adjustment in real estate values.
“Offices are the most vulnerable to these price drops,” he said. “We are seeing an increase in job vacancies in many cities, due to a preference for remote working. San Francisco, for example, had a 6% office vacancy rate before the pandemic. Today, it is greater than 15%.
Matt Vance, senior director and head of multifamily research for the Americas and senior economist for CBRE, estimates that employees will spend 25-35% less time in the office than before the pandemic.
“It’s about a day to a day and a half less in the office,” Vance said. “We believe this will result in a 15% reduction in office space demand per employee.”
Vance noted that multifamily properties have provided an average annual total return of 8.8% over the past five years. He added that multifamily also offers key benefits beyond returns.
“It is easier to place large capital [in multifamily]”, he said. “It is also the best hedge against inflation among these sectors and it is the most stable sector over the last 40 to 50 years.”
Danny Nix, Jr., CCIM, a commercial broker on The Nix team with Coldwell Banker SunStar Commercial, spoke to the crowd about natural disasters and their economic effect on commercial real estate. He said natural disasters cause many groups to provide aid and services – such as catering companies, electricians and disaster relief teams – and that these groups will need help to find commercial properties.
“If you know in advance that a big storm or natural disaster is coming to your area, it’s important to anticipate the game,” he said. “After a disaster, Realtors® become an important resource for these groups,”
The National Association of Realtors® is America’s largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries.
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