The first quarter of the year was anything but boring for commercial real estate. The recent developments in the banking sector added concerns about lending activity in the market. While commercial real estate relies heavily on the banking industry for capital, there were rising concerns that the recent bank failures would make it harder to get a commercial real estate loan. Nevertheless, according to the Federal Reserve, commercial real estate loans of small, domestically commercial banks remained unchanged during February and March despite the bank failures. Meanwhile, in April, lending activity is picking up week by week.
Here are some takeaways from this report –
- The Industrial sector of commercial real estate has continued to show strength this year. As e-commerce sales and supply chain disruptions continue to drive demand for warehouse and
distribution space, the industrial vacancy rate remains low at 4.3%. - The Retail sector of commercial real estate had the lowest vacancy rate among all the sectors in March 2023. Despite higher prices, consumer spending remains strong. As a result, this sector continues to perform better than pre-pandemic.
- The Office sector is still facing challenges. The downward trend of office space demand has continued throughout the year, resulting in a record-high vacancy rate of 12.9% compared to the previous
year’s 12.0%. The future of traditional office space is unclear due to the ongoing impact of COVID-19, with many businesses adopting hybrid work arrangements that allow for a mix of in-person and remote work. - The Multifamily sector continues to slow down from its record highs in 2021. Net absorption is 82% lower than the previous year, and the vacancy rate has increased to 6.7% from 5.0% the previous year.
- The hospitality sector saw a further increase in hotel revenue, which was previously affected by COVID-19 restrictions and quarantine measures. The revenue per available room (RevPAR) is now over 10% higher than it was before the pandemic. As both business and leisure travel pick up, the demand for hospitality spaces is expected to keep increasing throughout 2023.
Read the full report – HERE