If the economy weakens, rent and NOI growth could clearly drop and could become negative.Cap rates can also be negatively impacted by tighter lending by banks.The failure of some banks that started with Silicon Valley Bank is likely to cause a tightening of terms that banks are willing to provide for commercial real estate.That said, there are a lot of non-bank lenders for commercial real estate. Enter your email below. Dramatic increases in interest rates, uncertainty about pandemic-induced changes in the way real estate is used, and new federal investments in reshoring and infrastructure are all weighing on the minds of real estate managers, investors, and developers. Based in San Jose and living on the Peninsula, Steffen has a unique understanding of the market and what it takes to be successful in the Bay Area. Copyright2023 Jones Lang LaSalle IP, Inc. On the other side of the ledger, however, several large blocks of space became available on the market through sublease offerings that pointed to a diminished appetite for office space among tech companies amid the coronavirus. Improve value through positioning, marketing and leasing of vacant space in owned assets. With over 10,000 experts across the globe, we're ready to help you buy, build, occupy, and invest in commercial real estate assets. Stay up to date with the market trends shaping the future of real estate. Commercial Real Estate. The owners equivalent rent of residences was up 6.9% from the year We empower you to shape a brighter way forward. In recent calls with investors, regional bank leaders tried to cast the turmoil in the industry spurred by the collapse of Silicon Valley Bank as a moment that had passed. This study focuses on those rent control measures, particularly as they have regained popularity due to housing market conditions over the last several years. But, looking into the future, demographic variables will become as important as interest rates, income growth, and construction costs in determining the return on real estate assets as we head for a demographic-induced housing bubble. A substantial portion of commercial real estate loans are floating rate, which makes them particularly vulnerable to Fed policy, and a large chunk of the debt will mature in the next two years. But there are a few bright spots in the commercial real estate forecast. Find media contacts, and get access to commercial real estate news and announcements. The dashboard was delivered through AVANT by Avison Young: leveraging real-time data and analytics to make cities and location-based decisions more transparent and efficient. NOI growth is positive in all sectors and surprisingly strong for retail properties, with a quarterly growth rate of about 5 percent, followed by apartments at about 2 percent and office and industrial properties at about 1 percent quarterly growth. Colliers 22nd Annual Silicon Valley Trends 2021 Even with more employees returning to in person work environments, the instability in the economy have halted any expansion plans. A 2023 recession would likely be a more traditional one. As we head into the new year, keep an eye on these 2023 commercial real estate trends and opportunities. Experts and county officials say the growth wont last. Trends While managers, investors, and developers make decisions to ensure good returns in the short run, they must keep their eye on demographic factors that fundamentally change market dynamics in the long run. China's Tech Funding Banks Are Feeling Insecure Spring 2023 | Volume 1, No. Find out how we create brighter ways of working with our partners around the globe. Office vacancies in Silicon Valley were at 12.7% in the fourth quarter of 2020, up from 9.6% for the similar October-through-December period of 2019, Colliers reported. WebSilicon Valley Commercial real estate news, market analysis, trends, and information for the greater Silicon Valley area Commercial real estate news, events, recruiting solutions, and Find out how we create brighter ways of working with our partners around the globe. Although rising interest rates tend to increase cap rates as discussed above, growth in net operating income (NOI) tends to lower cap rates since investors are willing to pay more for current income if they expect the income to increase in the future.. This article is being provided for educational purposes only. Industry. That translates to less credit and lending activity, and continued volatility for asset pricing.. While the rate of new household formation will eventually fall, the volume of houses put back on the market by seniors will steadily increase. Inflation hasnt been this high since the 1980s. This is not a step While a potential economic recession may lead to trouble in the commercial real estate sector, investing in high-demand areas and avoiding panic can help mitigate temporary disruptions. Credit and debt are necessary for the proper functioning of economies, especially in real estate, because most projects are leveraged. He refused to let it end in Game 7, Do Not Sell/Share My Personal Information. Real estate: Silicon Valley commercial property market slumps Commercial Real Estate Stay up to date with the market trends shaping the future of With fewer companies seeking more space to accommodate growing headcount, the amount of available square footage mounts. We will then delete it safely and securely. Commercial real estate markets, already stressed going into 2023, have suffered additional repercussions from the recent banking turmoil. A recent report by CommercialEdge shows occupancy rates for commercial real estate in many big cities as very low. There are signs that smaller offices in suburbs, as well as newer buildings in central businesses districts, could be more insulated from the stress. Is there a business case for creating more housing that falls between affordable housing, with its tax credits and government programs, and market-rate housing, which is driven purely by costs and rates of return?