Just about everywhere you go, people are talking about a potential recession. Fortunately, few seem confident that a recession is coming, even though many worry about one. The last few years have been a crazy roller coaster for residential real estate, but what does a potential recession mean for commercial real estate?
First, it's important to recognize that, just as the pandemic wreaked havoc on people's lives, it wreaked havoc on commercial real estate. From residential investment properties to office and warehouse space to retail establishments, no area of commercial real estate came through the pandemic unscathed—and no area will be unaffected by a recession, either.
As federal interest rates increase, the cost of borrowing money to buy a home also increases. As a result, first-time homebuyers are now finding that they can afford far less home than they could afford a year ago. At the same time, existing homeowners who are locked into 30-year-fixed rate mortgages are hesitant to sell and have to finance a new home at a higher rate and are increasingly choosing to stay put—giving first-time homeowners fewer properties to choose from and more competition for the properties that are for sale. As a result, many would-be homebuyers are choosing to stay as renters until they can afford to buy.
A recession will not likely hurt the bottom line for investors in residential properties. But, with the cost of borrowing going up, it's expensive for real estate investors to buy new properties.
Working from home meant that offices stood empty, while companies had to keep paying expensive leases for empty offices. When those leases expired and employees expressed a desire to continue working from home, many of the companies chose not to renew, opting to lease a smaller space or a space with fewer amenities. A recession will likely only exacerbate that trend.
Warehouse and Retail Space
The rapid increase in online shopping during the pandemic meant that warehouse space became more important than ever as retail space became less important. Now, with the world open again but people still addicted to online shopping, retail space in attractive areas is desirable, and warehouse space remains profitable. But, a recession would likely mean decreased spending on the extras, making investing in either a bit more of a gamble and dropping the value of both.
If you're already a commercial real estate investor or interested in buying commercial property, you need advice from someone who understands New York commercial real estate. Melvin Monachan is an experienced New York real estate attorney who can help you make smart, informed decisions. Call (347) 389-1682 or contact us online today.