The commercial real estate sector is undergoing unprecedented changes, presenting both challenges and opportunities for developers and investors alike. In a recent interview conducted by CPE with Emily Butler and Wesley Prato, Partners at CohnReznick, insights were shared on how to navigate this dynamic landscape in 2024.
Despite nationwide record-high office vacancies, the situation varies across different regions. While major Texan and Californian cities struggle with soaring vacancy rates, areas like Palm Beach and Fort Lauderdale, Fla., boast some of the lowest vacancy rates in the country. This underscores the nuanced nature of the market, requiring tailored strategies for success.
Butler emphasizes the importance of creativity and adaptability for developers in this environment. Converting properties to different asset types, holding investments for longer periods to add value, and diversifying portfolios are key strategies. Moreover, there’s a growing interest in exploring new asset classes and sectors, such as data centers and medical offices.
Prato highlights emerging trends in the commercial real estate market. The increased use of artificial intelligence and cloud-based applications fuels demand for data centers, while specific subsets like single-family rental and student housing remain promising. Understanding end-user needs and developing projects with adaptability in mind are crucial best practices to stay ahead of the curve.
Regarding office space demand, Prato emphasizes the significance of location and convenience. Offices located near highways or public transit are expected to have lower vacancy rates as employees prioritize accessibility. Investors are responding to market conditions by diversifying portfolios across various asset classes and seeking increased transparency. ESG considerations, particularly focused on climate and environmental factors, are gaining prominence.
Despite challenges posed by rising interest rates, optimism remains for the commercial real estate industry. Both Butler and Prato anticipate a more active market in the latter half of 2024, driven by evolving market dynamics and investor appetite. As the industry continues to evolve, a proactive and strategic approach will be essential for seizing opportunities and mitigating risks in the ever-changing landscape of commercial real estate.