Navigating for Success

Factors affecting commercial real estate, and a 2023-24 outlook

by Suren Goyal

Commercial real estate is a complex and dynamic field affected by a range of factors. It can be a lucrative investment for those who are able to purchase and manage properties successfully. The income potential from commercial real estate can be substantial, with tenants typically signing multi-year leases and paying higher rents than residential tenants. 

Additionally, commercial real estate can provide diversification for an investment portfolio and potential tax benefits. As such, it is an important and dynamic field that requires careful consideration and expertise for investors, developers and other industry professionals. Here are some key factors that could influence the outlook for commercial real estate in 2023-24:

Economy

The state of the economy is a major driver of commercial real estate demand. In general, a growing economy tends to result in higher demand for commercial real estate, while a recession can lead to decreased demand. The overall health of the global economy — including factors such as interest rates, inflation and job growth — will play a major role in the future of commercial real estate.

Technology

The increasing pace of technological change has the potential to greatly impact commercial real estate. The growth of e-commerce, for example, has led to an increase in demand for logistics and distribution centers, while the rise of remote work has caused a shift in demand for office space.

Demographics

The demographic trends of an area can greatly influence demand for commercial real estate. For example, areas with a large population of young professionals may see increased demand for office space and multifamily housing, while areas with a large retiree population may see increased demand for healthcare facilities and senior living communities.

Policy

Changes in government policy can have a significant impact on commercial real estate, particularly in areas such as tax policy, zoning laws and environmental regulations.

Sentiment

Investor sentiment can play a large role in the outlook for commercial real estate. If investors are bullish on the prospects for commercial real estate, they may be more likely to invest in new projects, leading to increased supply and, potentially, lower vacancy rates.

Outlook

Looking ahead to 2023-24, the outlook for commercial real estate will likely depend on how these factors evolve. While some uncertainty still exists regarding the future, a few potential trends include:

• Continued growth in logistics and distribution centers, driven by the ongoing growth of e-commerce
• A continued shift in demand for office space, as remote work continues to be more widely adopted
• Changes in investor sentiment depending on the state of the economy and other factors

Overall, the future of commercial real estate will be shaped by a complex and evolving set of factors. While some potential trends may emerge in the coming years, it is difficult to predict the future with certainty, and investors and industry professionals will need to stay informed and be adaptable to succeed in this dynamic field.