Thanks to the pandemic and the move toward remote or hybrid working, commercial property management needs to pivot to keep up with current demands. Moreover, commercial property leaders must find creative ways to contend with a recession and inflation that lead to high-interest rates.
There are tough challenges for retail properties and office buildings. But property management leaders and owners can overcome with the right strategy and planning.
Top Challenges for Commercial Property Management
First, here’s a look at the top challenges impacting commercial property management.
1. Record-high Inflation
It’s no surprise that inflation is one of the largest factors affecting all industries. It especially hits commercial real estate. According to Charts, the U.S. inflation rate as of December 2022 was 6.45%. This is down from 7.11% in the previous month. However, it surpassed 9% in June 2022. Inflation has not been this high since the 1980s. This largely affects commercial real estate building and housing affordability.
2. High Interest Rates
The market expects interest rates to climb in 2023, a huge problem for real estate commercial properties. The one upside of rising interest rates is that building tenants are less likely to move.
3. Fewer resources
Commercial property management must contend with doing more with less. Labor shortages and concerns about the recession are forcing companies to find ways to be more efficient. One thing commercial property management teams are doing to counteract this is reviewing operations strategies for automation and efficiency opportunities.
4. Move to remote or hybrid work models
As companies change their work models from 100% in person to remote or hybrid, the commercial real estate industry needs to be ready for shorter leases, nonrenewed leases, or smaller spaces.
According to a BuildingEngines report, they can automate processes relating to certificate of insurance (COI) management, tenant issue management that includes work orders and managing incidents, inspection, and preventative maintenance.
One of the biggest goals of commercial real estate property managers is to ensure the transfer of knowledge from experienced engineers to junior or new engineers. Hence, prioritizing and managing their work is the No. 1 priority followed by equipping them with mobile and app technology. No. 3 is reducing safety hazards.
All of these trends may result in a mild to moderate recession in 2023. Unfortunately, if this is the case, experts predict it will take years before seeing signs of recovery.
Impacts on Commercial Property Management by Property Type
How will these factors affect the different types of commercial real estate? All assets will be affected but in different ways.
1. Retail properties
How retail properties will respond to inflation and other challenges depends on a few factors. The main ones are location and retail category. Neighborhood retail centers in strongly populated residential areas will most likely fare well.
Some shopping malls, especially B- and C-class malls, are being redeveloped. These buildings may be converted into mixed-use properties with housing, retail, restaurants, and entertainment like movie theaters. Urban retail centers struggle more due to higher rates of rent and fewer people working in urban locations.
2. Office properties
As of right now, it’s unknown what the future of office real estate looks like. What is known is Moody’s Analytics data indicates none of the regions have seen their office vacancy rates dip below pre-pandemic Q4 2019 levels. In searching for improving operational efficiencies, companies are sacrificing their office space as they move to a remote or hybrid work model.
This is not the case for all locations. Many have switched from public transportation to private vehicles for safety reasons. Therefore, regions that are drivable and have a lower cost of living tend to perform better.
3. Industrial properties
With more customers shopping online comes a greater need for warehouses and industrial facilities. The e-commerce industry is focusing on getting orders to customers faster. The Department of Commerce Census Bureau shows e-commerce sales have not reached 20% of total sales. This is good news for local retailers as the bulk of the shopping still occurs at brick-and-mortar stores.
E-commerce total sales in the third quarter 2022 have reached approximately 15%. The highest occurred deep in the pandemic with the fourth quarter of 2021 at almost 16%. Warehouses and industrial property performance depend on the e-commerce industry.
4. Multifamily residential properties
Despite the increasing cost of rent, multifamily residential properties are enjoying a five-year low in vacancies. The downside is there’s a great demand for affordable housing that outstrips supply.
The BuildingEngines report lists the following items as the highest priorities for residents:
- Comfort (Example: hot and cold temperatures)
- Faster response to work orders and maintenance requests
- Upgraded tenant amenities
- Enhanced health and safety protocols
There’s a strong need for commercial property management to explore creative ways to boost affordable housing. This can be accomplished with mixed-income properties, modular construction and adaptive reuse of buildings, and investigating Historic Tax Credit. Some commercial property managers have successfully converted warehouses and schools into affordable housing.
How Commercial Properties Can Prepare for a Recession
Commercial property management leaders need to do what they can to become more efficient in doing more with less. Automating certain activities and tasks can make a difference and enhance efficiencies. You can also get more eyes on the property by investing in remote video surveillance that combines automation and human intelligence.
Here are four ways commercial real estate can cushion the blow that comes with a recession.
1. Invest in commercial real estate technology
BuildingEngines report asked commercial property management what they plan to do to solve their top challenges in commercial real estate. One of the items is to invest in commercial real estate technology. It was almost evenly split between keeping the technology investment the same (53%) and increasing their technology investment (43%). The remaining 4% say they will decrease their technology stack.
The tech investment is almost equal for those who add more square footage with 46% staying the same and 50% increasing tech spending. Out of all the commercial real estate sectors, office real estate will have the largest increased investment in commercial real estate technology at 64%.
Here are the technologies they plan to prioritize:
- Building operations and equipment maintenance
- Tenant experience
- Energy management and sustainability
- Visitor and building access
- Smart buildings and the internet of things
2. Creating flex spaces
One opportunity overlooked by commercial property management is flex space. This means having spaces that can serve multiple purposes. They can be changed to fit current business requirements. This allows management to adapt to tenants’ current needs and ensure rentable income. These flex spaces will also help retain companies that move to a remote or hybrid working model.
3. Develop a tenant engagement strategy
Another way to encounter the recession is to develop a new commercial tenant engagement strategy. Thus, it’s critical to develop one and communicate it to tenants. At 77%, the most common method of communication is email. Commercial property management needs to survey their tenants to make sure they’re making the best decisions to meet tenants’ requirements and needs.
4. Invest in sustainability
In order to compete with other commercial real estate properties, it’s critical to prioritize energy efficiency and water conservation. More than 60% prioritize sustainability. Some tenants will expect the building to support sustainability efforts.
Technology That Improves Efficiency and Supports Labor Shortage
Several recurring themes have popped up in reports about commercial property management in 2023. They include the labor shortage, doing more with less, and finding ways to be more efficient.
There’s a technology that can help streamline processes while filling the gap in the labor shortage. That’s remote video surveillance. This technology can help with the need to reduce safety hazards while increasing health and safety protocols. Additionally, commercial property management has indicated it plans to prioritize visitor and building access.
Video surveillance with remote monitoring that integrates access control can achieve all of these. At the same time, they can fortify buildings.
The cost of security cameras with monitoring can be far less expensive than hiring full-time security guards. Yet, you gain more eyes on your property. Video surveillance with remote monitoring can benefit your commercial real estate property in other ways. Video surveillance solves many problems.
The presence of video cameras alone can cause some intruders and vagrants to go elsewhere. Some may not notice the cameras. Whenever this happens, a trained monitoring operator who is watching the live activity, can issue an audible warning over an on-site speaker. These security personnel are not located on your commercial property. This help ensure they make smart decisions without fearing for their lives.
Another benefit is that a video surveillance system can save and store all recordings securely for later access and review. The video recordings can do a lot for your property. This comes in handy when you learn about something that happened days, weeks, or months earlier or during times when your property is not being watched in real time. Besides, law enforcement and insurance companies can use the footage in their investigations.
Some Stealth Monitoring clients use video recordings in employee training. They also use video recordings to identify opportunities for enhancing efficiencies. You can also use these recordings for marketing your commercial real estate property. They’re a valuable source for clips that show your property in action.
Remote video surveillance companies like Stealth Monitoring work with commercial property managers to identify operational efficiencies and opportunities. The high-resolution cameras and their high views of the property help spot areas of improvement. You may discover redundancies that can be eliminated.
If you add an access control system, it can help automate the process of people entering and exiting the building without adding more full-time employees. Many Stealth clients see a return on their investment within months.
To learn what’s possible with video surveillance, review the list of industries Stealth Monitoring has worked with across the U.S. and Canada. You can watch videos of remote video surveillance in action for your industry. If you’d like to learn more, please contact us.
Texas Private Security License Number: B14187.