Much has been written about the challenges that have befallen commercial real estate, particularly the office space sector. CRE refers to the real estate sector that does not include single-family homes or land, which are treated as separate categories of “residential.” However, multifamily properties, homes, and all other non-residential real estate fall under the CRE umbrella.
But while the office sector has struggled since the pandemic, other areas of commercial real estate have shown promise.
Why the office sector continues to struggle
Subscribe to Kiplinger's Personal Finance
Become a smarter, more informed investor.
Up to 74% off
Sign up for Kiplinger's free e-newsletter
Profit and prosper with the best expert advice on investing, taxes, retirement, personal finance and much more – straight to your e-mail.
Get the best expert advice straight to your email and start profiting and prospering.
Promising areas for CRE
Office to residential. In some cases, office space can be converted into residential units. However, it is often easier to demolish the old building (unless it has cultural significance and still has aesthetic appeal) and rebuild from scratch.
Problems with remodeling office space include adding separate plumbing, sewer, and HVAC for each unit. There are also issues with natural light availability, as offices may have large floor spaces with no central windows or natural light. There are also zoning restrictions. All of these problems can be solved with money, but again, sometimes it just isn't worth the money.
Generally, office-to-residential conversion only makes sense if the end buyer is wealthy enough to purchase a large amount of floor space.
Data Centers. There is a growing demand for data centers that house computer servers that run the content needs of the internet. For example, as brick-and-mortar retail shifts to online shopping, more servers are needed to keep up with the demand. Locating data centers in areas of high demand also increases the speed of applications. The growth of artificial intelligence is also driving the demand for data centers. Warehouses. While retail stores in certain regions are becoming popular again, the rise of online retail is undeniable. Some companies, such as FedEx, Walmart, and Amazon, have warehouses across the country. However, fuel costs and delivery service issues may justify setting up smaller warehouses in certain regions to place certain products closer to target buyers. These warehouses are often equipped with the latest technology, such as sorting robots and blockchain-based data tracking. As online retail grows, so does the warehouse sector. Multifamily. As the price of standalone homes and lots rise, some families choose to live in multifamily buildings for security, convenience, and amenities. Special Purpose. Properly developed land can also be a source of income on its own. This can include vacant parking lots and garages, golf courses, etc. However, it is important to note that this varies from place to place, with some areas seeing growth and others seeing decline.
Related content
The information provided herein is not investment, tax or financial advice. Please consult a qualified professional for advice regarding your specific situation.