I would hate to be a practicing commercial appraiser right now. I remember trying to develop opinions of value in the aftermath of 2008-2009 even years later. I can remember incurring the wrath of brokers when we had to use historical data, and the chasm was immense. The commercial real estate sector is experiencing difficulties in today’s quickly changing environment. Interest rate volatility has widened the gap between buyers and sellers, and the future is clouded with uncertainty. Nevertheless, rather than focusing on “the gap,” let’s investigate practical ways to bridge it.

At Odds

Buyers and sellers are at odds due to price uncertainty caused by the recent spike in interest rates. Particularly in the North American and European office markets, the widening price gap is shown by the MSCI Price Expectations Gap. Unlike industrial or residential properties, offices have a more challenging situation.

Crystal Ball Anyone?

We need to know where interest rates are headed so we can get back to square one and restore liquidity. Potentially bringing buyers and sellers closer together, investors may expect tightening cycles to slow down as a result of lowering inflation. Expectations can be better aligned if there is clarity on this matter. Pundits are throwing around the term “cautiously optimistic,” which is code for “we hope rates will stabilize.”

I’m Not Worried, Are You Worried? Okay, Maybe I Worry A Little

Investors are worried about the cost and availability of financing, and they anticipate things will only get worse until 2024. In spite of these obstacles, several parts of the commercial real estate sector, such as multifamily, industrial, hotel, and retail, are nevertheless doing quite well.

What’s Ahead?

Looking ahead to 2024, some notable trends include the following: the use of proptech to streamline operations; the demand for data centers driven by AI, the resilience of retail properties; the changing nature of office vacancies as a result of hybrid work; an increased emphasis on amenities; and a heightened presence of ESG and sustainability initiatives.

Opportunities?

In this setting, learning from previous errors is essential. There is still a wide gap between Buyers and Sellers. Opportunities to purchase real estate at a discount may present themselves during these periods. Although we have no say over the market, we may change with the times and grab chances as they arise.

Tight Ropes

In commercial real estate can balance the tight rope of walking the chasm of disconnect, get liquidity back, and ride out the commercial real estate market’s ebb and flow, provided we are resilient, flexible, and work together.

 

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