Challenges Facing the Commercial Real Estate Industry

“This could have a significant impact on congested arterial roads and collector streets, particularly during peak hours in densely populated urban areas nationwide. ” By: Alex Anaya (ESRP Corporation)

Recent data suggests that the prices of commercial real estate are likely to decline sharply in the upcoming months. This is due to the combination of increased interest rates and the nature of many commercial real estate mortgage loans, which often come with variable interest rates that have significantly eroded equity for current owners.

Additionally, the low office-space occupancy rates resulting from the Covid-19 pandemic have further exacerbated this situation. As a result of these factors, the rent per square foot is expected to drop, and many commercial property owners will be “under water” with little hope of recovery in the near future. It’s likely that many of these property owners will have no choice but to return their assets to the banks, which will then be forced to sell them at low prices. These assets may be converted into residential units, but the cost of doing so will be significant. Despite the banks’ losses, most will be motivated to sell these assets as soon as possible.

While multi-family residential buildings are classified as commercial real estate, it’s worth noting that the information discussed above is not applicable to this asset class. However, if there is a surge in the conversion of existing office buildings into residential units, it could lead to an increased supply of rental properties, potentially affecting rental prices. The extent of this impact remains uncertain and warrants further analysis.

Reducing office space is likely to result in fewer miles traveled by commuters. This could have a significant impact on congested arterial roads and collector streets, particularly during peak hours in densely populated urban areas nationwide. Consequently, traffic, safety, and operational analyses should ideally account for the evolving commercial real estate landscape to produce better outcomes and allocate resources more effectively to areas where they are most needed. The potential implications of the impending commercial real-estate situation could present interesting possibilities to enhance urban mobility.

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