Riding the Wave of the CRE Cycle

Jessica Fiur, Editor-in-Chief

It’s tough out there for CRE investors, what with rising interest rates and the prospect of a recession. COVID-19 is still around, but for the most part things seem like they’re back to normal. People are traveling again. And shopping. Going to concerts. Just generally living. Well, back to normal except for office use. (And as someone typing this in my house, wearing a lovely blouse in case there is a surprise Zoom call and ratty gym shorts in case there is a surprise 5K run, I can attest that office use isn’t back to pre-pandemic levels.)

In fact, the office sector is still a mystery. Will it become healthy again? Are people going to continue to work from home at the same rate? According to reporter Joe Gose’s article “Class B Office Properties Face Fewer Financing Options,” among 10 major cities, only about 45 percent of office workers have been going into the buildings on a weekly basis. As a result, Class B office owners are finding it difficult to upgrade buildings to compete for tenants.

“When you have a combination of challenging occupancies for commodity space and a deterioration of liquidity, it’s a double whammy that has put significant pressure on valuations,” John Alascio of Cushman & Wakefield told Gose.

But fear not!

With other asset classes performing well, there are many investment alternatives. As Jeffrey Steele reports in his article “Why These CRE Sectors Provide Safer Harbors,” there is a “connecting thread” among areas with investment potential, including “perennial performers” and “cutting-edge specialties.” Grocery stores, life science facilities and urban infill properties are all proving to be valuable investments. (Once again, as during the height of the pandemic, the essential workers are saving the day!)

“Rents have continued to rise to offset increased costs,” CRG’s Chris McKee told Steele about industrial properties. “For now, we can’t build fast enough to meet the demand.”

Talk about a good investment!

Read more about what CRE investors are flocking to in our September issue.