In the realm of commercial real estate development, adaptation is the name of the game, especially in the face of economic challenges and shifting consumer behaviors. The U.S. real estate market is currently experiencing significant corrections, with factors like increasing interest rates, declining GDP, and decreased deal flows contributing to what experts describe as a “current slump” in the sector. It’s a challenging landscape, but it’s one that Quattro Development’s co-founders, Rob Walters and Michael Liyeos, are well-prepared to navigate.
The Ever-Changing Landscape of Commercial Development
Rob Walters and Michael Liyeos, veterans of the commercial real estate industry, understand that flexibility and innovation are paramount when steering through the tumultuous waters of a contracting market. Their journey with Quattro Development began during the peak of the Great Recession, an era that tested their mettle and ultimately made them stronger.
In light of the profound changes brought about by the pandemic, the co-founders recognize that the commercial real estate industry has undergone a transformation that will leave a lasting impact. “Commercial development is at a crossroads,” notes Liyeos, underlining the need for forward-thinking strategies.
Challenges on the Horizon: Rising Construction Costs
One major challenge facing the industry is the persistently high construction costs. A report by CBRE reveals that despite some moderation from the previous year, construction costs in 2023 are expected to rise by 5.4%. Michael Liyeos points out the complexity of delivering customized spaces tailored to tenants’ specific needs, making retrofits increasingly costly. This shift may lead more brands to opt for ground-up construction to meet their exact requirements.
Higher interest rates and growing complexity in construction processes have become significant factors reshaping the commercial real estate landscape. Liyeos highlights the bottleneck created by understaffed municipalities and the intricacies of zoning codes. To overcome these challenges, retailers may look to regions with more streamlined approval processes to expedite construction.
Rob Walters predicts a period of supply stagnation, driven by elevated interest rates and reduced construction lending by banks. While this may cause challenges in some segments, the demand for housing continues to grow, particularly in the multifamily and industrial sectors. This surge in demand could lead to rent increases, impacting housing costs for consumers.
Embracing Innovative Financing Solutions
With rising materials costs and interest rates making loans more expensive, developers are seeking creative financing options. Quattro Development’s co-founders emphasize the importance of embracing innovative lending solutions. They recount their own experience during the Great Recession, where finding a lender was a formidable task. Going forward, creative lending will likely play a crucial role in keeping development projects afloat.
A Resilient Industry’s Future
The future of commercial real estate development is filled with both opportunities and challenges, and the ability to adapt will be the key to success. As Rob Walters and Michael Liyeos suggest, developers and tenants who can navigate these complex issues will thrive in the evolving landscape.