Commercial real estate faces three top challenges which continue to persist throughout the second half of 2019.
2019 is already past its midpoint, yet the challenges predicted at the dawning of the year have not gone away. Rather, these issues have only continued to intensify. The market for commercial real estate shows signs of change, cues that CRE owners and investors should take to adapt to what the future seems to hold. Below is an outline of the top three challenges in commercial real estate.
The Online Market
Discussed for years, the decline in brick-and-mortar stores and the rise of e-commerce platforms bodes ill tidings for commercial real estate . . . but not entirely. Despite the lament predicting the “death of the mall,” some forms of physical establishments continue to remain strong and stronger. For example, grocery stores are obviously still in high demand. Old warehouses are being repurposed for e-commerce storage and shipping needs, and some e-commerce stores are strategically placing brick-and-mortar stores where the majority of their buyers live. Although the ever-increasing online market lessens the popularity of physical locales, there are yet ways to take advantage of it.
Rising Interest Rates
Because of the recession of 2009, the federal government greatly lowered interest rates to help boost the economy. Commercial real estate, although greatly untouched by government involvement, depends greatly on what the federal government does with the economy. CRE thrives on low interest rates, but as the economy has gotten much better over the past ten years, interest rates have been on the rise and are now reaching normalization. During this period, a great CRE bubble has formed and is predicted to burst very soon. If any challenge is the elephant in the room, it is this. However, the depth of the coming recession is unclear.
Political Uncertainty
Political uncertainty remains the third most concerning aspect of commercial real estate. As aforementioned, a bubble burst would likely result in greater unemployment and less buying and selling. Another political concern is the state of international trade. Potential trade wars with China cause owners and investors to worry. Whatever the political or economic climate, though, there is never a bad time to persist, learn, and keep the market going.
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