10 of 2023’s Biggest Commercial Real Estate Trends

To say that 2023 was a tumultuous year for commercial real estate is, perhaps, to put it mildly. The rise in interest rates, corporate adjustments to the hybrid work model and the looming specter of a recession that was promised but (fortunately) never delivered were just some of the stimuli impacting both tenants and investors across all sectors of CRE this year.

Amid this tumult, however, were trends that showed a way forward: niche sectors, like self-storage, that attracted increasing levels of investor interest; radical approaches to office vacancy, such as vertical farming; the potential for underutilized malls to be transformed into much-needed apartments; and pickleball — so much pickleball.

Here are 10 of the trends that captured the attention of LoopNet editors and readers this year, many of which we anticipate will endure in 2024 and perhaps well beyond.

Investor interest in the self-storage sector is by no means a new trend, but in 2023 the asset class’s appeal seemed to become turbocharged. According to a survey of global investors by brokerage firm CBRE, 41% of respondents planned to pursue investments in the sector this year.

And that’s not surprising during an economic moment when investor and consumer sentiment tilted from optimism to pessimism on an almost daily basis. That’s because, according to Morgan Windbiel, a senior vice president with CBRE’s Self Storage Advisory Group, “The industry has continued to grow and outperform many other asset classes through both good times and bad.” In this Q&A, Windbiel outlined the appeal of the self-storage sector and the challenge curious investors to be aware of.

Triple-net retail properties are practically the antithesis of a trendy real estate investment. Reliable, consistent and low-maintenance are some of the adjectives mostly associated with these assets. However, the sharp rise in interest rates had a predictably pronounced effect on an asset class that many investors consider akin to a government bond.

In this article, Andrew Bogardus, executive director in the net lease group at Cushman & Wakefield, detailed both the basics of investing in triple-net lease properties, as well as how interest rates were impacting the current market.

The question of how to make a return to the office more appealing, not just for the average employee, but for the corporate decision makers determining how much space to lease, has been persistent for years now and, with the rise in interest rates, became only more urgent in 2023.

At the CRETech conference in New York this September, industry leaders such as Michael Przytula, Accenture’s managing director of intelligent and digital workplaces, stressed that office owners and users needed to focus on innovation.

“People don't want to leave their home to go to an office from the '80s,” he said. Employers need to provide “a place where workers can consume services or capabilities that allow them to build things or perform certain functions that they just can’t do remotely.”

When Kevin Song’s parents lost the lease on the grocery store business in Brooklyn that they had spent decades building, he was inspired to help other small business owners gain more control over their destinies. That’s why he founded Withco, a lease-to-own commercial property company.

“Most mom-and-pop owners aren’t commercial real estate investors, and they may not have the commercial real estate expertise to get into the business of [property] ownership. So, we brought the lease-to-own model to the commercial market to empower them to become property owners, and give them the ability to turn their incredible cash-flowing businesses into generational wealth,” Song said.

Even in the midst of historically slow capital markets activity, some slightly esoteric sectors in the country’s biggest market, New York City, attracted attention in 2023.

Cushman & Wakefield managing director Jonathan Squires talked to LoopNet about the appeal of subsidized housing, outdoor parking/storage and neighborhood retail in the city where investors never sleep.

“I see tremendous value now,” Squires said. “I've seen a number of these cycles where investors decided to stay on the sidelines, and they never knew when the bottom was. And if you're six or 12 months late on that, you can miss a lot of the upside.”

Over the past few years, we’ve seen a lot of concepts about how to repurpose underutilized office properties — from the predictable (multifamily conversions) to the more imaginative.

But vertical farming, the use being championed by Calgary-based company Agriplay, is perhaps the most innovative use yet. The company has developed technology that enables vacant office space to be used to profitably grow up to 150 different crops of fresh produce for local markets.

Even for smaller, entrepreneurial investors, real estate investment has increasingly become a global pursuit. In fact, according to the 2023 edition of The Wealth Report from Knight Frank, private investors were the most active investor group globally in 2022.

To understand where these investors are placing their bets, LoopNet looked at the top 10 countries for private real estate investors, which included nations such as the United States, South Korea and Mainland China.

Buying distressed commercial property certainly isn’t a new trend, but the pursuit took on new relevance in 2023, as rising interest rates meant that growing numbers of properties were headed toward foreclosure.

To help investors interested in distressed properties understand how to pursue them, LoopNet spoke with Matthew Scoville, a New York-based attorney and partner at Hunton Andrews Kurth, as well as Brian Cohen, a New York-based attorney and partner at Goulston & Storrs, who both explained how to define and acquire distressed properties, among other nuances of the sector.

While the idea of living in a mall may seem like the plot from a long-forgotten 80s comedy, it’s taken on increasing validity as investors look for new ways to repurpose these often under-utilized retail behemoths. LoopNet spoke with Don Bredberg, managing director of real estate development consultancy StoneCreek Partners, about the opportunities and challenges associated with converting malls into multifamily.

No 2023 trends round-up would be complete without pickleball. The sport that has swept the United States over the past several years has also made an indelible mark on commercial real estate, showing up in multifamily projects, retail strip centers and more. In this article, LoopNet looked at one operator’s plans for commodifying America’s enthusiasm for tennis’ younger sibling, as well as other burgeoning retail trends to watch in 2023.