Navigating Commercial Real Estate Trends

Insights from a Wisconsin Property Development Company

The world of commercial real estate is one that’s constantly evolving, but with the times we’re living in now, it seems every aspect of our lives that touches commercial real estate is changing more dramatically than ever..

That has put commercial real estate in a state of upheaval, but it’s not all bad news. Change also creates exciting opportunities, especially here in Wisconsin. Understanding what’s happening in the commercial real estate space is key to predicting what’s likely to happen next and how you can prepare for it, so let’s get started.

Market Imbalance
Some markets have commercial sectors that have been overbuilt, resulting in a lot of office space sitting empty, especially as many workers have switched to remote work since the pandemic.

The top U.S. markets saw vacancy rates of almost 20% in the first quarter of 2024 … but not all markets have been equally impacted. The great thing about Wisconsin is it’s still an emerging market. Not only are we not suffering from the overinvestment in commercial real estate that happened in other areas, but we’re currently growing as companies recognize the benefits of moving their headquarters here.

As a Midwest state, we’re in an ideal location for a corporation’s Midwest headquarters, while being significantly more cost effective and easier to reach than Chicago. At the same time, we’re close enough to Chicago that companies that need to access it can easily do so from Wisconsin.

Financing
Rising interest rates have led buyers to make offers that are below the asking price as they factor the higher interest rates into their overall costs.
At the same time, sellers are unwilling to sell without getting a return on the investment they made when they bought the property. And, if they’re looking to buy another property, they know they’ll have to deal with higher interest rates, which has an impact on their willingness to sell below their asking price.

The resulting gap between what sellers are willing to accept and what buyers are willing to pay has left many owners unwilling to sell at all.

Remote Work and Affordable Housing
When buyers do want offices, they want high-quality offices with amenities like on-site daycare and a fitness center to try to entice their workers back into the office. This can make it harder for owners to sell older office buildings. The decreased need for office space as more people work from home has come at the same time that we’re seeing an increased need for housing, especially affordable housing. Many areas are working to overcome those challenges by converting commercial real estate into residential real estate.

Another way some companies have chosen to address the issue is by investing in multi-purpose buildings that provide more real estate to fulfill both commercial and residential needs in a community.

Moving Out
Many businesses are moving away from the central business districts of yesteryear and moving out to the suburbs. The benefits of suburban commercial real estate include lower costs, more space, and it’s easier for employees to get to, especially if they live in the suburbs.
This is another area where Wisconsin shines. While we have the central business districts, we also have plenty of space in our suburbs for commercial real estate development, and room to grow.

Industrial Real Estate
The industrial sector is likely to get hit hard if the Trump administration insists on heavy taxes on the Chinese products many of our manufacturers rely on.
That said, so far the data shows there’s reason to be cautiously optimistic when it comes to the industrial sector. Part of this is because of supply chain reshoring efforts, but also because of increased investment in AI leading to a higher demand for data
centers and cold storage. The result probably won’t look like the industrial real estate we’re used to, but it is an exciting development.

Looking Ahead
At Compass Properties, we pride ourselves on, not only keeping up with commercial real estate trends, but looking to the future and helping our clients prepare for what’s coming next.
Whether that means updating your current commercial real estate to meet new requirements and entice workers into the office, or just maintaining your existing building, we’re here to help.