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What’s next for California’s commercial real estate sector?

On Behalf of | Apr 16, 2024 | Real Estate

With the rise of remote work, the rise of interest rates and the destabilization of the housing market over the past several years, even very valuable California commercial real estate markets have fallen on hard times. Unfortunately, unless creative solutions are implemented thoughtfully and quickly, that trend is unlikely to change any time soon. 

According to widespread reporting, office space is now emptier in California – and throughout the U.S. – than it has been since, at minimum, 1979. Roughly one out of every five office spaces in the country is now vacant. 

What does this mean for commercial real estate overall?

Office space is certainly not the only kind of commercial real estate on the market. However, trends in the office space sector are being mirrored in other areas of the marketplace, with the notable exception of a surge in demand for warehousing. This makes sense, given how many businesses learned to thrive off of shipping products over the past few years, instead of requiring that consumers travel to stationary locations in order to shop. 

It is additionally worth noting that the strain on the office space sector of California’s commercial real estate market is starting to affect financing for virtually all commercial real estate deals. Banks hold a great deal of debt tied to untold numbers of properties designed for use as office space. Local governments also rely on the tax base that occupied commercial real estate facilitates. Investment portfolios are becoming destabilized due to the shift in the ways in which Californians utilize – or fail to utilize – commercial real estate as time goes by. 

This is not to say that investing in commercial real estate is no longer a good idea. This is simply to say that due to seismic shifts in the market – and the likelihood that negative effects of those shifts will be mitigated any time soon – those seeking to invest need to be thoughtful and informed about their approaches if they want to safeguard their interests effectively.