Our 2024 Commercial Real Estate Predictions

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This has been a major year for commercial real estate in the Quad Cities in many ways. Looking into 2024, we have three main predictions based on trends we’re seeing locally, regionally, and nationally.

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  1. “There’s a lot of potential for disrupters, whatever they may be.”

2024 is an election year. This isn’t great news for a market that relies on investors who are not interested in gambling when it comes to inflation, interest rates, and other laws which could majorly affect how and where they do business. Additionally, current geopolitical and environmental issues could lead some investors and businesses to pause until the election cycle has ended.

  1. “There’s a lot of capital with no place to go.”

A trend we believe will continue from 2023 and into 2024 is the purchasing of distressed buildings. There are some positives and negatives to this piece. When buying a distressed building, it is important to have the building thoroughly inspected and appraised. Recently, a building purchased in the Quad Cities was found to have nearly $1M in damage due to a collapsed roof. The repairs had been estimated to cost $250,000 a few months before the collapse.

The tension between the existence of start-up capital and the need for major renovations on many buildings in the Quad Cities is leading to some hesitation. On top of this, anyone who has already locked in a low-interest rate on their building is generally not going to move out for a higher interest rate.

  1. “Large corporate offices are still seeing low market values.”

One major disruptor from nearly 4 years ago is the continuation of the effects of the Pandemic. Large corporate offices are not returning to their former value, even as many offices call their employees back to work. There’s a lot of uncertainty and caution among real estate investors because of this new trend.

As 2023 comes to an end, it is important to take stock of the year before moving into the next one. Despite high-interest rates, uncertainty, and population decline, there have been many investments and new businesses appearing in the Quad Cities.

At Roy R. Fisher, we provide commercial real estate appraisal and litigation services. If you are interested in working with us or would like to join our team, please reach out.

What do Tenants Need to Know When Leasing Commercial Properties?

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There is a complex landscape to navigate when establishing a commercial property. The decisions you make can significantly impact your operations and bottom line. Whether you are seeking space for your office, medical practice, retail store, or industrial building, there are some key points to keep in mind.

One of the first things you want to note in taking up a particular space is its location. For those opening an office or retail space, proximity to clients is everything. It’s helpful to have both visibility and access from highways or high-traffic roads. Those with industrial buildings don’t often require a neighborhood location but will still benefit from being close to interstates and highways that make it easy to transport goods to customers. It’s also important to consider your employees’ commute to work as it will help attract a good employee base.

For retail stores, it can help to do a market analysis and ensure your store has a competitive edge. Knowing about other similar businesses nearby can help you choose between two good locations and make the best decision for your customer base.

Commercial Property For Rent

Another key point is your lease terms. Consider your business needs and growth plan. A shorter-term lease may offer more flexibility but it comes at a premium. A long-term lease offers stability, but you can become locked into a space that doesn’t suit your business growth plans. Leases can be offered on different terms such as gross leases or net leases. You may be required to pay a pro-rata share while the landlord covers structural costs or be expected to pay all costs.

Your tenant improvements (TI) allow you to make your space uniquely your own. It provides space suited to your needs and wants. Be sure you discuss who is responsible for covering the costs and whether these improvements revert to the landlord at the end of the lease.

While newer buildings are compliant with ADA requirements, if you are in an older building, this may not suit your client base, especially if you own a medical practice. You’ll want to be sure your clients, particularly those with disabilities can access your building. Having automated doors, ample parking, and elevators or ramps, depending on the building layout allows you to ensure your clients are comfortable with your space.

Other features include the building-to-land ratio to ensure there is enough space to maneuver around the parking lot. Industrial locations may want to ensure there are enough dock doors. For those leasing medical offices, you may need specialized plumbing for exam rooms or electrical requirements for diagnostic equipment.

Leasing space demands thorough research and careful consideration. Your choice of location, lease terms, and property features can significantly impact your success. Always negotiate with the landlord to ensure the lease aligns with your unique requirements. It is also a good idea to seek legal and real estate advice to protect your interests during the leasing process.

How do Interest Rates Impact My Property Value?

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In the ever-changing landscape of commercial real estate, understanding the impact of rising interest rates is crucial. As noted by experts at EY – US, a strong economy can sometimes offset the negative impacts. Various factors such as economic growth, inflation, and market conditions influence this complex relationship.

This has limited effects on current property owners with a fixed mortgage rate but will impact potential purchasers needing new financing. For those with variable-rate mortgages, the impact can be immediate, leading to increased monthly payments. Meanwhile, trying to recapture those increased holding costs in rents can also lead to increased vacancy rates as higher costs may deter new tenants.

So, what strategies can investors employ to mitigate these impacts? Proper research and due diligence are key to making informed decisions. Locking in current rates with fixed-rate mortgages can protect against future rate increases, and diversification across different asset classes can also provide a hedge against interest rate risks.

Reports indicate that increased borrowing costs have led to a decline in commercial retail property values. Real-world examples and expert insights further underline the importance of understanding this relationship. As interest rates increase, the cost of owning increases, resulting in either the return to the equity declining and/or an increase in the capitalization rate. Currently in the Quad Cities, market demand has remained strong some property types resulting in little decline in value noted.

Staying informed and adaptable is crucial in this dynamic interest rate environment. With the right strategies and a keen understanding of market dynamics, it’s possible to mitigate the profound impact that rising interest rates can have on the commercial real estate market, say experts at Kearny Bank.

For more insights, check out our blog post on What Changes the Value of Commercial Property. If you think you might need a commercial real estate appraisal, feel free to explore our services or contact us for further discussion.