Home News Realtors expect ‘vulnerable’ commercial real-estate prices to drop in 2023 — as people embrace hybrid work

Realtors expect ‘vulnerable’ commercial real-estate prices to drop in 2023 — as people embrace hybrid work

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Realtors are bearish on commercial real estate.

Well, technically — National Association of Realtors (NAR) Said We expect the commercial real estate market to experience a “minor price decline” in 2023.

NAR chief economist Lawrence Yun said last weekend, “Across the country, we’re starting to see a decline in commercial appraisals.

“Cap rates are no match for rising borrowing costs, especially among those in need of property refinancing,” he added. “However, strong job growth is supporting prices in many markets.”

Cap rate is capitalization rate, is used to calculate the expected rate of return for a property, whether residential or commercial. The cap rate is calculated by dividing the property’s net income by its asset value.

Yun explained that a sharp rise in interest rates in the past few months has increased borrowing costs, forcing cap rates to rise and, in turn, to drive down property prices.

“Offices are most vulnerable to these price drops,” Yoon said.

“Many cities are seeing an increase in office vacancies, which is in favor of remote work,” he added. Before the pandemic, the San Francisco office had just 6% vacancy, he noted. It is now over 15%.

Rising interest rates have pushed property prices down 13% from their peak this year, according to the Green Street Commercial Property Price Index.

“It’s a simple story: the higher the Treasury yield, the higher the cap rate. said in a statement.

The company reported that office prices fell 17.5%.

“And even if the price drop was big, I don’t think we’re out of the woods,” he added. high”

I like some bosses Elon Musk People are trying to get back into the office, but the NAR said it’s unlikely employees will fully return to the office like they did before the pandemic.

Employees will spend 25% to 35% less time in the office than they did pre-pandemic, said Matt Vance, CBRE’s senior director, Americas regional head of multifamily research and senior economist.

This equates to about a day or a day and a half saved in the office. And “he thinks this will lead to a 15% reduction in demand for office space per employee,” Vance said.

Thinking about the housing market? Write to MarketWatch reporter Aarthi Swaminthan at the following address: [email protected]

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