With all of the events from the past two years, commercial real estate markets have fluctuated (to say the least). Some of these fluctuations have been temporary, while others have potentially far-reaching and long-lasting effects on the CRE industry as a whole. This has resulted in unpredictability that is only beginning to stabilize.
How do these changes affect your valuations? Let’s take a look at some types of properties that are increasing in value, some that are decreasing and how you can stay apprised of what’s going on in the commercial real estate world now that the dust is starting to settle.
Which Types of Properties Are Increasing In Value?
Inflationary periods almost always result in property value increases (and commercial properties are particularly resilient in this area), but certain types of properties appear to be better investments than others. Here are a few examples of property types that increased the most in value the past year, according to Green Street:
- Retail: With a 20% weight in the Commercial Property Price Index (CPPI), retail is experiencing a rebound after a dismal 2020. This makes sense as the bounceback was only a matter of time. But it doesn’t apply to all retail (watch out for malls/strip malls).
- Office: Similar to retail, office spaces are experiencing a comeback as more employees begin to work in the office again. While the pandemic’s effects on traditional office space are still being felt, this points to a strong rebound in a return to office work.
- Healthcare: The fourth-highest weight in the CPPI at 15%, it makes sense that healthcare properties have increased in value due to the pandemic. Healthcare is more valuable than ever, but time will tell if this increase can be sustained.
- Industrial: The past two years have been unique, with more people spending money on products instead of activities or trips. This has a direct effect on industrial properties, as demand for production only continues to go up.
Which Types of Properties Are Decreasing In Value?
Other types of properties have taken a hit in value, and a select few have been negatively affected by inflation. The only question is, will this be a temporary decrease or is it cyclical or due to recent pandemic-induced restrictions? It will ultimately be your call, but it would be wise to note these types of properties and their recent declines in value:
- Malls/strip malls: This isn’t a trend limited to the past two years, as these types of properties have been on the downgrade for some time. It’s possible there may be quick wins in this area as everyone gets back to normal, however.
- Education: Educational facilities (and student housing in particular) has been in lower demand due to more students studying remotely. This may be a wise bet for the future, however, as more employees change careers and pursue education for their other career interests with #TheGreatResignation.
- Self-storage: While residential real estate has been rising in value, self-storage properties haven’t kept up. This may be due to more people staying put in their homes and not needing temporary storage, but it’s a bit of an anomaly compared to others and is worth investigating further.
- Lodging: This may be a type of property to consider adding to your portfolio, as more people will travel again as restrictions are reduced and people feel more comfortable around others in general again. Yes, lodging took a hit during the pandemic, but that’s an opportunity to embrace the potential of the hotel industry.
Managing Valuation Changes with CRE Software
Depending on how you look at it, both these increases and decreases in value are opportunities for smart investments. For example, industrial doesn’t show any signs of slowing down soon, while retail and office are fairly low-risk bets and healthcare is an unknown. Similarly, products decreasing in value may be due for a rebound that hasn’t hit yet. Either way, you can forecast more accurately than your peers and set your portfolio up for future success with the right CRE software. It’s almost impossible to keep up with this rapidly changing environment manually, so commercial real estate software is invaluable in the time it saves with automated tasks and other organization and workflow features.
If you’d like to see how Quarem can help you monitor market changes like property values, request a demo today.