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  • Writer's pictureSpring Valley, The Investor's Bank

Top Four Picks: 2024 Commercial Real Estate Investment Trends

1. Demand Continues to Rise for Multi-family Residential

High-end office buildings may usually dominate the commercial sector spotlight, but multi-family properties are experiencing a significant increase in demand. This surge is driven by the shift towards remote work, the ongoing housing market boom, and limited supply of single-family homes.

The rise of remote work due to the pandemic has led many individuals to seek convenient access to contemporary amenities while relishing the comfort of their own homes. This trend underscores the resilience and promise of multi-family real estate, indicating that it warrants closer examination from investors and industry experts.

Cincinnati’s multifamily sector is benefiting from a tight housing market according to Marcus & Millichap Q1 2024 forecast. "Entering the fourth quarter of 2023, the metro marked 23 straight months of active home listings below 3,000 houses. Higher mortgage rates and home prices are contributing factors discouraging current homeowners from trading up. This has limited the prospects for first-time home buyers as fewer listings increase competition for options. A tight single-family market will keep apartment vacancy below 5 percent through the end of 2024, backstopped by strong suburban demand despite heightened construction. Steady in-migration — which is expected to total over 20,000 arrivals on net over the next five years — and consistent household formation will support lease-up in the long-run. The influx of new supply will, however, mitigate rent growth this year. Areas like Butler County and Southeast Cincinnati may be most affected as construction grows there. Still, the metro’s average effective rent will have surged nearly 40 percent above the 2019 year-end mean by December."

2. Data Innovation Centers and Hybrid Workspaces are in Demand

CRE is heading in a new direction of Hybrid work models. According to global commercial real estate services company CBRE, 87% of companies with 10,000 or more employees say they will be adopting hybrid work and 85% of employees say they would prefer to work virtually at least two-to-three days a week going forward. This leaves the CRE sector in a unique position to reinvent spaces to cater to the new infrastructure needs of larger companies.

Companies are looking to optimize the performance, scalability, reliability and cost efficiency of their IT assets. This may mean fewer offices, but a new need for data centers is being created.

This shift to a hybrid model is also bringing new desires for flex or cultural spaces. According to the Havard Business Review, companies won’t suddenly abandon all their offices, because going to the office has never been just about work. And technology won’t make socializing less dependent on direct interpersonal contact anytime soon. But we do need to rethink the cube design that all too many offices exemplify. Office are now being used as landing spots and collaborative spaces. Gathering spots that allow free contact for creativity are essential, as are a few alcoves to conduct more private conversations.

3. Student Housing is Thriving in the Current CRE Landscape 

Student housing is emerging as a lucrative niche in commercial real estate, attracting CRE investors who recognize the high value of investing in this sector. Universities are increasingly looking to partner with investors to develop various facilities such as data centers, research labs, and education and healthcare buildings on or near their campuses. These partnerships not only drive financial activities but also create opportunities for students and university staff, contributing to sustainable economic development. The greater Cincinnati area offers many of these opportunities with well-established Universities such as UC, Xavier & Miami and the growing campuses of NKU and Christ Nursing College.

4. Growing Shift Toward Industrial and Logistics Storage Facilities 

Industrial and logistics (I&L) properties have emerged as Collier's top investment choice for 2024. With their reputation for stability and promising growth prospects, investors are increasingly drawn to I&L assets.

The commercial real estate landscape is witnessing a significant shift as more investors redirect their focus towards industrial and logistics centers to take advantage of lucrative investment opportunities. This strategic move is primarily driven by the rise of automation and artificial intelligence (AI) in e-commerce operations and warehousing.

This evolving trend is poised to deliver consistent and substantial growth not just in 2024 but also in the years ahead. In particular, investors are exploring opportunities in cold storage facilities to further diversify their investment portfolios.

The Takeaway: Savvy Investors Adapt

The real estate market is evolving, and smart investors are paying attention. Step away from the ordinary and delve into the growing specialized sectors of commercial real estate. By staying informed and active, you'll be ready to seize profitable commercial real estate opportunities in 2024.

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