Changes in Commercial Real Estate

Chicago's Michigan Ave

Chicago’s Michigan Ave

With the noticeable changes in the residential market in the past few months many are now looking at the commercial segment for a similar change.

Typically, the commercial sector follows the residential trend and the general economy by roughly 18 to 24 months. But the supply and demand, and price trend we have been seeing in the residential markets may not be duplicated by the commercial sector.

Financing these purchases (real estate only or businesses with real estate) have been increasingly difficult. Research from Real Capital Analytics showed that commercial real estate investments globally rose 4 percent year-over-year. Yet the industrial, office, and retail sectors are practically stagnant right now. The decline of smaller financial institutions that purchasers have relied on leaves many business owners and investors unable to secure financing. Local banks have traditionally played a major role for local businesses being the primary lender for many smaller commercial purchases less than $1 million.

With limited financing options, this leaves potential investors and business owners with very few options: finance out of pocket, or finance with a major lender. If deposits with larger banks continue to grow, the available capital to finance smaller commercial purchases may become harder to come by.

Outside of financing obstacles, the change in how businesses operate, and the tremendous growth of a global economy have impacted the traditional “way of doing business.” Many businesses now operate with fewer needs, needing smaller offices as staff works remotely, even from halfway around the globe. Many smaller businesses even opt from working from home, or shared office space – cutting their costs. Shared office hubs are becoming increasing popular, especially in the tech industry, due the overall costs versus amenities available, ranging from conference rooms, dining halls, internet access, lowered carbon footprint, as well the ability to network and work alongside other professionals.

The retail segment has been long aware of the change in the global economy, as their consumers research, plan and ultimately purchase their goods online. Traditionally anchoring shopping malls or strips, retailers have come to face the benefits, and adversity of working in a digital world where both your consumers and competition can be from anywhere in the world.

Multifamily properties will still continue to be the driving force behind commercial purchases as they have been recently. We have yet to see any factors to drive up demand for office, industrial and retail.

Sherwin L. Sucaldito, REALTOR®, GREEN, ABR, CRPM
The Institute of Luxury Home Marketing
Green REsource Council, GREEN
Accredited Buyer’s Representative , ABR
Certified Residential Property Manager, CRPM
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Photo by Jeff Wilcox using the Creative Commons License.