Commercial Real Estate Trends, Post-COVID

The COVID-19 pandemic caused disruptions to global supply chains from which the United States has yet to recover, and the real estate market is no exception. Slowdowns that began during the lockdowns of 2020 and 2021 have caused low inventory, rising prices, and higher demand for housing. The ripple effect continues to plague the market amid rising interest rates, inflation, and volatile financial markets.

Commercial real estate trends post-COVID mirror trends in the residential market, but there are added considerations because the changing needs of tenants must also be taken into consideration. Here's what aspiring real estate investors need to know.

When many people think about investing in real estate, the first thing that comes to mind may be flipping single-family homes for resale in the residential market. However, commercial real estate (CRE) is another potentially profitable avenue for investors. That means buying and holding a property rather than profiting from a short-term sale. Commercial real estate activity may also include leasing and managing properties.

All in all, commercial real estate includes:

• Office buildings, including medical and dental offices
• Hotels, motels and restaurants
• Warehouses and industrial parks
• Multi-family homes and apartment complexes
• Retail space

When investors purchase commercial real estate, they are looking both at the capital appreciation of the property and its potential to generate cash flow from rental income. While location is always an important consideration, other factors matter in the commercial market, such as the percentage of community residents who rent, as opposed to owning their homes. Areas with high rental rates may be better for investors looking to purchase apartment buildings.

It usually takes more expertise to be successful as a CRE entrepreneur because the field is more complex. To be a successful investor, you should have a good understanding of the following:

• How the tax code affects buying and selling commercial property
• The process of executing a 1031 exchange
• How zoning laws and ordinances may affect the future profitability of a purchase
• When it is "safe" to invest in the secondary and tertiary markets (properties not located in prime areas)
• How to finance a commercial real estate purchase
• Property management

If you want to excel in the commercial real estate market, a Master of Science in Real Estate program can help by instilling the knowledge and expertise you need to make these complex transactions successful. As MSRE is more focused, faster, and more cost-efficient than an MBA, yet more in-depth and rigorous than a real estate certificate program. Plus, you can complete your online Master’s in Real Estate in a part-time or full-time course load, which lets you step out into the industry sooner.

The curriculum will likely include the following courses:

• Real Estate Finance and Investment
• Real Estate Law
• Quantitative Methods
• Real Estate Accounting and Taxation
• Advanced Real Estate Analytics
• Capital Markets
• Urban Economics
• Leadership and Emotional Intelligence
• Real Estate Development and Entrepreneurship
• Sustainable Development
• Real Estate Analysis and Valuation

Some programs offer a bootcamp to get students up to speed. Bootcamps are intensive classes that students typically take before they begin their other required coursework. In an MSRE program, the bootcamp is the first course; it goes over the foundations of statistics, finance, and economics.

Because building networks and relationships is central to any career in real estate, students may be required to work in groups with a professor on a final practicum: a project that tests the knowledge they have gained and culminates in a presentation to a board of industry leaders and academics. Through this opportunity, students gain invaluable insights from the responses and guidance they receive from industry leaders who they might not have been able to meet otherwise.

In order to become a successful real estate investor, you need to stay abreast of current market trends. Here are just some of the recent developments in the commercial real estate market to keep on your radar.

The pandemic has changed how Americans look at the space where they spend the work day. People are leery of being exposed to the virus at work and have been hesitant to return without assurances of safety protocols and protection. More outdoor space, amenities (such as gyms), improved technology, and better air filtration are just some of the things on employees' wishlists.¹

Like other commercial real estate trends post-COVID, this one may add to the cost of real estate investment, as some of the desired improvements may fall to the owner rather than the company that leases the space.

Climate change has been an industry concern for decades, and real estate post-COVID is no exception. Real estate accounts for 40% of global carbon dioxide emissions, and 18% of that—roughly half—comes from commercial real estate.^2,3

As a result, some states and municipalities have started instituting laws designed to make commercial space more efficient. Real estate investors cannot pass the total cost of modification on to tenants, so it's important to keep this in mind when assessing possible investment properties.

Another consequence of climate change is the potential destruction of commercial buildings due to floods, fires, and mudslides. Investors need to be aware of evolving climate conditions when they look to purchase real estate, especially in areas of high risk for natural disasters.

Inflation is another one of the commercial real estate trends, post-COVID, that investors need to consider. To control inflation, the Federal Reserve raised the benchmark interest rate to 1.5% - 1.75%—a three-quarter point jump—in June 2022. At least one analyst believes the Feds will continue raising the rate in the coming months until the benchmark possibly reaches 3.8% by 2023.⁴

Unfortunately, this trend could result in higher commercial mortgage loan rates, making it more expensive for investors to expand their portfolios.

The pandemic accelerated yet another commercial real estate trend—that of people shopping online rather than going to shopping malls.⁵ Moreover, during COVID surges, fewer people dine out or frequent retail spaces because of their health concerns.

There's been a decline in retail shopping at physical locations, so investors should be aware that eCommerce is negatively impacting the value of the retail sector. If people are shopping in person less frequently, there is less need for retail business space. Investors should consider the longevity of their brick and mortar stores when they look to create a balanced commercial real estate portfolio.⁶

Commercial real estate trends post-COVID will continue to evolve as the pandemic ebbs and flows. We at Yeshiva University are always keeping a close eye on the markets and conducting research to see what’s going to happen next. Check back on our blog for more articles and blog posts on real estate in all of its forms.

It takes a highly qualified individual to navigate the complex world of commercial real estate post-COVID. In the online MSRE program from Yeshiva University's Sy Syms School of Business, you’ll learn from leading figures in New York real estate about how to make big deals and influence urban planning, zoning laws, and historical preservation. With the impressive skills and connections you gain here, you’ll excel in a variety of possible roles, including as a commercial developer, venture capitalist, mortgage lender, broker, banker, CRE CLO manager, and much more.

Contact an Admissions Advisor to talk more about your goals and see if an online MSRE is the right choice for you.