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Landlords and lenders aren’t the only ones wringing their hands over office properties. City leaders, economists, and the Fed are concerned about the impact a steep devaluation of these assets will have on the financial sector.

In this blog post, we’ll attempt to pinpoint why office properties could prove to be more resilient than the current worst-case scenario prognostications suggest by taking a closer look at the factors contributing to the anxiety swirling around them.

The Financial Picture

Office owners managed to survive the pandemic mostly because most tenants have been locked into long-term leases. Approximately $80 billion in loans backed by these office assets will mature in 2023. Moreover, thousands of these leases will expire over the next two years. CRED iQ reports that, as pertains to office and mixed use, “scheduled lease rollover will be at its highest in 2024 and 2025 — each year will individually have more than 60 million square feet rolling.”

Rising interest rates and tight credit are only aggravating these stresses, making refinancing these leases a challenge. Moreover, the declining value of office buildings threatens the stability of the regional banks carrying those mortgages on their books.

In a recent CNBC interview, Patrick Carroll, Founder and CEO of CARROLL, issued an alarming warning: “There’s $1.5 trillion in debt maturing on commercial real estate by 2025… sellers are not realizing how much their properties have lost value, and they’re not willing to dump their properties yet. They haven’t felt enough pain.” Carroll forecasts a crash in CRE markets “at least as bad as ‘08 – ‘09.”

But not all industry experts are as pessimistic. Kevin Fagan and Ricardo Rosas of Moody’s Analytics acknowledge there will be disruption but believe it will be more of an ordinary, manageable down cycle. From their perspective, the CRE sector and its lenders are in a much stronger position than they were before the Great Recession.

The Return to the Office (RTO) is Lagging

Office occupancy rates are something of the elephant in the room. But the room itself is something of a ghost town.

Almost 65 percent of American companies now require their employees to work in the office at least one day a week. Nevertheless, about a fifth of the country’s office space remains vacant. In fact, on an average workday, about 40 percent fewer workers are reporting to the office than before the pandemic. This rate has held steady for nearly a year, suggesting that remote and hybrid working arrangements will become a permanent part of the office landscape.

Why? The ability to work remotely is an option that helps attract and retain talent. Employees who value the flexibility remote work allows are not inclined to surrender it. (However, a slowing economy and softening job market may be eroding some of their leverage.) Yet many large companies are mandating a return to the office over concerns about productivity, efficient communication, and overall employee buy-in — not to mention how much they’re paying for unused office space.

For example, Omnicom Group, owner of multiple marketing and advertising firms, spent much of Q1 and Q2 2023 adjusting its commercial real estate portfolio. Its holding company began aggressively cutting its real estate costs by closing or consolidating offices in Chicago, Dallas, and San Francisco. What’s not clear, however, is whether major players like Omnicom are considering new ways to engage their employees as they negotiate long-term leases. In other words, corporate leadership and the health of corporate culture are among the atmospheric conditions creating a perfect storm for office assets.

As those storm clouds gather, they’re precipitating fear. As more companies take the Omnicom approach, some worry that oversupply will create what one group of researchers has dubbed an “Office Real Estate Apocalypse.” Arpit Gupta (NYU Stern School of Business), Vrinda Mittal (Columbia Business School, Columbia University in the City of New York), and Stijn Van Nieuwerburgh (Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); ABFER) found that large drops in lease revenues, occupancy rates, lease renewal rates, and market rents in the office sector have led to a $506.3-billion value destruction of this asset class nationwide.

But not all office properties have been affected equally.

As Fagan and Rosas write, “… return of workers to the office — even part-time — will eventually support performance of office properties in the coming years.” The question is which specific office properties.

According to Guggenheim Partners Chief Investment Officer Anne Walsh, properties in large urban centers (such as San Francisco and New York) and second-class office buildings in need of repair are most at risk. “We’re likely going into a real estate recession, but not across the entire real estate market,” she recently told the Financial Times.

What’s Helping Office Buildings Remain Resilient

High-end buildings in prime locations fared better through the pandemic than office spaces that are not as well-appointed. A flight to quality that began before 2020 accelerated in 2021 and early 2022. Over the last three years, more than three-quarters of office tenants who moved either upgraded from Class B properties to Class A or switched from one Class A building to another.

Fast-forward to 2023: the gap between Class A and Class B properties is narrowing, primarily due to the factors we’ve already discussed. Yet well-managed and well-maintained modern buildings continue to outperform Class B buildings as measured by overall site visits. As Keith DeCoster, director of market data and policy for REBNY says, choosing an office at a prime location with great amenities “is going to give you at least a leg up in getting folks back to the office.”

Additionally, the demand for office space will undoubtedly be affected by advances in AI and automation technology that allow companies to reduce their workforces. Lower headcounts mean less square footage is necessary. Large, single-tenant towers may become dinosaurs that are replaced by smaller, multi-tenant buildings.

Speaking at an April 2023 event, Briggs Development President Jeffery Rogers remarked that “there’s going to be demand for smaller office, and lots of it, so that’s where we would like to be.” As employers restructure their office space needs, they will continue to seek out amenities to entice employees back to the office.

The Role Amenities Play in Attracting Tenants (and Protecting Property Values)

Employees have become used to the convenience of remote work. But even a cursory cost-benefit analysis reveals that working from anywhere is anything but all pros and no cons.

Employees are missing out on the synergy — the creative energy — of face-to-face interactions. The regular back-and-forth of ideas can’t be replicated in a weekly teleconference, but many employees need more incentives to return to their daily commute. They are looking for spaces that are comfortable, convenient, and offer a variety of amenities. Janet Pogue McLaurin, Global Director of Workplace Research at Gensler, sums it up this way: “It [the office] has got to be a destination, not an obligation.”

COVID brought health and safety concerns to the forefront of every industry. In commercial real estate, modernized ventilation systems, antimicrobial materials, touchless access systems, and WELL certification became highly desired building features. Although the threat posed by successive variants of the novel coronavirus has diminished, tenants continue to look for these upgrades to assure the health and wellness of their employees.

Traditional perks, such as fitness centers, cafeterias, and on-site childcare, can look very attractive to employees who have mainly been working in isolation for the past three years. A December 2022 MRI Software survey found that job-seekers are looking for employers who offer “hotel-like amenities.”

Beyond standard features such as air conditioning, reliable internet connectivity, and free parking, more than a quarter of respondents said they desire areas for socializing and dining as well as outdoor green space. A gym, shower rooms, and bicycle storage also made the list of sought-after amenities. Some landlords have gone above and beyond even that, adding lounges, golf simulators, and pickleball courts in an attempt to lure tenants to their buildings.

Forward-thinking organizations understand they must rethink how they utilize space and adopt a more dynamic model than rows of cubicles or the open office plan. Rather than assign spaces to individuals, the movement is toward spaces defined by their purpose. Employees can move to the area that best suits their immediate needs throughout their workday. Comfortable, informal group seating may work well for brainstorming sessions, while library-like quiet rooms support work that requires deep, immersive thought. And because working from anywhere will never completely go away, these environments must contain technology that can accommodate both remote and on-site employees.

Most importantly, these same forward-thinking companies are still in the market for buildings that offer exactly this kind of variety, reconfigurability, and improved quality of work life. Not surprisingly, mixed use is an important part of that mix. As Erik Sherman writes in a recent article at GlobeSt.com, “cities combining residential, office, and leisure as soon as possible into mixed use will have more compelling offerings for people and companies that are looking for a new location.”

Although the challenges facing office properties are real, so are the opportunities for those willing to adapt to evolving market conditions. By focusing on quality, amenities, and location, property owners are more likely to find tenants, generate income (rent), and otherwise buoy the value of their assets.

It also helps to have a good working relationship with a commercial real estate appraisal firm that leverages best-in-class research and provides on-time delivery to help you make informed decisions about your office properties. LPA’s CRE valuation experts work closely with both federally regulated and non-depository lenders and are uniquely qualified to produce USPAP-compliant appraisal collateral independent of the loan process. Contact LPA today at https://lowerypa.com/locations/.

Uncertainty.

There’s an argument to be made that, more than any other factor, uncertainty is bad for business. Where there’s uncertainty, there’s an elevated sense of risk. And, where there’s risk, paralysis can take hold.

The current state of both financial and commercial real estate (CRE) markets would seem to support this thesis. Uncertainty has become pervasive due to liquidity issues at several prominent regional banks. Although plenty of analysis has been offered regarding the unique circumstances that led to the precipitous collapse of the most well-known of these institutions, the ripples from its failure have been felt throughout the entire banking system.

Specifically, those looking for answers — and assurances that this event is different from the financial sector woes that helped trigger The Great Recession — have trained a microscope on smaller banks. Given that these institutions, defined as those holding assets of less than $250 billion, may be responsible for almost 80 percent of CRE lending in the United States, “serious” doesn’t begin to describe the implications for industry stakeholders.

Now that observers have zoomed in on the banks that disproportionately serve property owners, buyers, and investors, what do they see?

• According to one study, 186 individual banks could face insolvency “even if only half of their depositors decide to withdraw their funds.” These banks are grappling with the declining value of mortgage-backed securities and long-term government bonds, much as the banks that triggered such tremendous concern in March were. And, because regional banks are a pillar of CRE lending, any shakiness in that sector will naturally ripple through the rest of the industry.
• $270 billion in CRE loans are set to mature in 2023. Approximately $80 billion of that debt is secured by wobbly property assets: office buildings, especially Class B and C buildings that have not been modernized to account for post-COVID changes in workplace culture.
• The assets sold from one failed bank fetched just 77 cents on the dollar. Whether or not this fire sale effectively creates a new baseline for property values, it provides a glimpse of how devalued CRE assets may become as overleveraged stakeholders become more desperate for equity.
• The Fed is unlikely to hit the brakes on raising interest rates any time soon. Their reasoning? The acute pain of a credit crunch (a near-inevitable result of the higher price of borrowing and tighter lending policies) is preferable to the fever of inflation.
• Calls for more stringent bank regulation have already been heard in Congress. There appears to be growing sentiment — and political will — to “reimpose some of the Dodd-Frank requirements that were rolled back in 2018.”

It’s neither comprehensive nor exhaustive, but the above list paints a fairly grim picture. Still, as any accomplished, principled commercial appraiser would ask about any data relevant to real property values, is it accurate?

In that spirit, we’ve turned to our own CRE valuation experts for guidance.

Keep reading to learn how Mario Caro, MAI, AI-GRS, SR/WA, Senior Managing Director of LPA San Antonio (and our firm’s practice leader in right of way and eminent domain), Brent Elliott, MAI, AI-GRS, Senior Managing Director of LPA Houston, and Drew McFarland, MAI, AI-GRS, Senior Managing Director of LPA Dallas, are maintaining a clear vision of the markets they serve despite the shadows cast by recent events.

 

What’s Been the Most Critical — or Impactful — Consequence of the Uncertainty Surrounding Regional Banks and Commercial Real Estate?

In Drew’s professional opinion, the impact has been immediate and dramatic. “What’s happened since mid-March has made CRE lenders much more focused on ensuring their collateral is being valued accurately,” he says.

Meanwhile, according to Brent, the volume of transactions is down. “When money was cheaper, there were a lot more buyers and sellers on the market. We also saw a lot more refinancing of deals to lock in lower interest rates. Now, spreads are much less favorable, and credit committees are showing reluctance to sign off on loans they would have approved a year ago.”

But caution among lenders isn’t the only factor affecting velocity. “Due diligence is always critical, but especially so now. The more due diligence is required, the longer the appraisal process can take,” Drew explains.

Mario, meanwhile, is keeping his eyes on the horizon. “There’s no question that banks are holding portfolios of assets that can only be offloaded at steep discounts. Real property isn’t the only one of those investment assets, but it’s getting the most headlines right now,” he observes. “If interest rates continue to hover around 5 percent and the Fed continues this game of chicken with inflation, CRE may be in for a rough ride for the next 8-12 months.”

 

Should Lending Dry Up and Transaction Volumes Decline Further, What Could That Mean for Commercial Property Values?

To Mario, this scenario spells trouble. “Any time the cost of capital increases, there’s a likelihood of price softening. Since interest rates and capitalization rates generally work in tandem with each other, I can’t help but think property values will eventually depress across the board.”

But he goes on to note that “some sectors will be beat-up more than others. Office and, to a certain extent, multifamily appear to be assets with the largest targets on their back. Industrial, self-storage, and lodging are generally understood to be in a better position to weather this storm.”

Brent believes that non-bank lenders (NBLs) could pick up the slack. “There will always be buyers and sellers. They will just have to look at other resources for capital,” he says. Mario adds: “More players in the game is good for investors and good for values. More lenders lending fuels transactions and makes capital available to a greater pool of borrowers and investors. But, with $4.8 trillion stashed in money market funds, many potential players are hesitant about investing in much of anything right now.”

Brent sounds an additional caution regarding so-called shadow lenders. “The capital they supply tends to come at a significant cost to the buyer — and at the expense of the property’s market value.”

Drew views the availability of financing from both a buyer’s and a seller’s perspective. “Sellers should be very realistic with current market values, as the cost of borrowing has increased significantly. Buyers, on the other hand, could be in a better position to negotiate. Fewer transactions mean scarcer market data, making it more difficult to agree on the value of any given property,” he points outs. “That tension could lead to correction with respect to some property values.”

Brent concurs. “At some point, everyone is going to need to be told what a fair, true value for their property is. The market, whatever its current condition, largely determines that value.”

How Has LPA Pivoted in Response to All This Uncertainty?

Much as they did during the pandemic, our CRE valuation experts have been extremely proactive in taking extraordinary measures to ensure their reports contain credible— and actionable — business intelligence.

“We are being held and are holding ourselves to higher standards,” Brent says. “We’re talking to as many market participants as we can even as we track down the most recent sales data and include the most current cap rates in our appraisals.”

Drew relates that he and his team “continue to maintain the highest level of quality for each appraisal document. Accurate reports containing the most current available data could not be more important right now.”

Mario’s experience has been much the same as Brent’s and Drew’s. But he calls special attention to proptech’s role in helping his team maintain LPA’s reputation for accuracy and 100-percent on-time delivery. “We’ve had to stay nimble by improving the technology and efficiencies we’ve gained through that technology to compile and organize large amounts of real-time data quickly,” he reveals. “Doing so allows our appraisers to draw informed, market-based conclusions and equip our clients with accurate and supported valuations.”

Our clients clearly appreciate the efforts we make on their behalf. If you’re interested in partnering with a commercial appraisal company that’s the fastest-growing firm of its type in Texas, contact us today.

When it comes to buying, selling, or leasing commercial property, it’s in your best interest to have an accurate understanding of the property’s value before closing the deal. Otherwise, you face a higher risk of overpaying or underselling.

This is where a reputable commercial appraisal company can be extremely helpful. By analyzing current market trends, property characteristics, income potential, and many other factors, they work with you, the buyer or seller, to ensure you receive fair market value for your commercial real estate (CRE).

Although you can expect to receive a similar set of deliverables from most property valuation firms, some go above and beyond expectations to help you maximize your investment or return. With so many prospective companies to choose from in 2023, how do you know which option is best for you? This article, crafted by the Research Team at LPA, explores the primary factors you should consider — and red flags to avoid — when searching for the right commercial appraisal company.

 

Understanding Commercial Appraisal Services

Property appraisals provide an independent and unbiased opinion on the value of a property. However, a commercial property appraisal results from a very complex and subjective process. Providing an accurate assessment of a commercial property’s value requires extensive experience, resources, and market data.

Due to significant variances in the type, size, and income potential of CRE assets, many factors can and do impact property values, leaving plenty of room for human error. Specifically, in land deals that often exceed 7 or 8 figures, the accuracy of this information becomes invaluable to a buyer or seller, as the property’s appraised value could result in a net cost or gain in the millions of dollars.

A professional and experienced CRE appraisal company, like LPA, will have a refined set of tools, processes, and resources to provide a comprehensive and in-depth analysis of any given commercial property — its characteristics, the surrounding neighborhood, the local market, comparable sales, cost and income potential, assumptions and limitations, and more — with a high degree of precision.

Therefore, selecting the right commercial appraisal company is essential to ensuring a smooth and successful transaction.

 

Factors to Consider When Selecting a Commercial Appraisal Company

Most property appraisal companies offer a similar range of services and capabilities. However, the level of expertise, attention to detail, timeliness, and quality of service can vary drastically from firm to firm. During your search, consider the following important factors.

 

Experience Appraising Similar Property Types

It should go without saying, but the right commercial appraisal company for you is most likely one with extensive experience valuing similar property types and a proven track record of providing high-quality and timely services.

While most CRE valuation companies follow a standard appraisal process, an experienced firm like LPA will have appraised hundreds, if not thousands, of properties and is more likely to have encountered a comprehensive range of relevant scenarios. Plus, seasoned appraisers familiar with the nuances of different commercial properties are more capable of developing methodologies that deliver consistent and reliable valuations.

Simply put: nothing can replace experience. Finding a commercial appraisal company with a history of success appraising similar properties can help ensure the accuracy and dependability of your specific valuation.

 

Strong References, a Good Reputation, and Accolades

Due diligence is also critical when selecting a commercial appraisal firm. One of the more effective vetting tactics is to request a list of references.

Former and current clientele will be able to provide unique, first-hand accounts of the appraisal providers:

• Strengths and weaknesses.
• Customer support and service.
• The level of detail in and overall quality of their reports.
• Their reliability and ability to meet deadlines.

On-time delivery is a crucial component of the appraisal process. The right commercial appraiser will meet their deadlines, giving you ample opportunity to review all documentation, request clarifications and changes (if needed), and submit everything required to make your closing date.

For some, quality of service may not be the only deciding factor when it comes to selecting an appraisal firm. Look also for companies that have earned a positive reputation within their local markets. Those that are actively involved in their communities, provide resources and career opportunities for students, employ appraisers who serve as board members for relevant institutions, and regularly receive industry-recognized accolades should be held in high regard. A commitment to business beyond profit may provide insight into how the appraisal firm operates and the experience a prospective client can expect to have with them.

 

Licenses and Additional Accreditations

While all commercial appraisers in Texas are required to have a state-authorized appraisal license, additional accreditations can demonstrate credibility and competency. Appraisers who have obtained specialized certifications possess in-depth knowledge of specific property types and appraisal methodologies.

For example, an appraiser who specializes in hotel valuation may obtain the Certified Hotel Asset Manager (CHAM) accreditation, which demonstrates a deep understanding of the hospitality industry and the complex nature of hotel, motel, bed and breakfast, resort, etc. valuations. Similarly, an appraiser who has earned the Counselor of Real Estate (CRE) designation has proven expertise in a broad range of real estate topics and is a recognized thought leader in the industry.

In addition to demonstrating expertise, accreditations, and licenses with a designation from the Appraisal Institute, such as the MAI (Member of the Appraisal Institute), or from the American Society of Appraisers, such as the ASA (Accredited Senior Appraiser), are recognized by bankers, legal professionals, insurance companies, lenders, brokers, investors, and advisors. To earn these credentials, appraisers must meet rigorous education and experience requirements.

These prestigious accreditations reveal a firm’s dedication to accurate, reliable valuations. They can also be a strong signal of the quality of service a commercial appraisal company can and does provide its clients.

 

Quality of Service

In the realm of commercial property appraisal, quality of service is synonymous with the accuracy and timely delivery of the written appraisal (or valuation) report. However, the client experience includes much more than these end results. Although an experienced commercial valuation firm should follow a refined and reliable appraisal process, several other factors can impact the customer experience.

A trustworthy appraisal company is one that:

• Ensures the valuation is tested and verified using comprehensive and rigorous quality control.
• Prevents lapses in communication and meets all deadlines via professional-grade responsiveness and punctuality.
• Is transparent and honest about the appraisal process, its pricing and fee structure, and each appraiser’s qualifications.

Admittedly, service quality can be more challenging to gauge prior to an engagement. Nevertheless, you should be able to pick up on some of these cues during your initial conversations with a commercial appraisal provider. Any provided references can also speak to their experience working with the appraisal firm you’re considering hiring.

 

Cost of Services

Cost is often the most influential factor in any transaction or engagement, but the lowest price does not necessarily equate to the best value. While it can be tempting to go with the most affordable option, it’s crucial to consider the appraiser’s credentials and the quality of service they provide.

An estimate that comes in lower than expected can even be a red flag. It could indicate that the appraiser lacks experience valuating properties similar to yours, which could lead to a less accurate valuation or costly mistakes down the line. Conversely, the priciest firm does not necessarily offer the best service. They may simply be accustomed to performing valuation work — such as appraising multi-property, multimillion-dollar, or quick-turnaround projects — that demands a premium.

One approach to finding the right balance between cost and value is to choose a firm that offers transparent and competitive pricing. An appraisal company that is upfront about its fee structure and can provide a detailed breakdown of its costs can better help clients understand what they’re paying for and make a more informed purchasing decision.

Bottom line: it’s always in your best interest to have visibility into an appraisal firm’s pricing model, as this is the best way to ensure you’re paying fair market value for its services.

 

Communication and Responsiveness

Clear communication and responsiveness are vital for any successful business transaction, and the same is true for commercial real estate appraisals. A reputable CRE valuation firm prioritizes clear and effective communication with its clients from the initial consultation to the final report delivery. They are also responsive to all inquiries and provide regular updates throughout the appraisal process.

Although an appraisal firm’s commitment to clear and open communication can be validated through references and client testimonials, not everyone adheres to the same communication standards. Engaging with a commercial appraisal provider frequently during initial conversations can shed some light on how they operate once they earn your business.

 

Turnaround Time

The time it takes to appraise a commercial property and produce a final report can vary greatly from property to property. Many factors, including the property’s size, scope, and/or complexity, the commercial appraisal company’s workload, the availability of data, and the type of valuation report requested can all impact turnaround times.

However, most appraisals must be completed within a specific timeframe, particularly when properties are being sold or refinanced. A delay or setback in the appraisal process can lead to negative consequences, such as missed opportunities or a loss in potential revenue. The commercial appraisal company you select should have a proven ability to deliver its appraisal reports on time.

For example, here at Lowery Property Advisors (LPA), we stake our reputation on 100% on-time delivery. We’re proud to guarantee timeliness, but very few — if any — firms can do the same.

 

What to Avoid When Searching for a Commercial Appraisal Company

While there are several factors that you should strongly consider when searching for and selecting a commercial appraisal company, there are also a handful of red flags you should beware.

 

Lack of Transparency

If a commercial appraisal company is cryptic about its process, fees, or any other pertinent information, it could be a sign they’re withholding something or misleading you. Clients should be wary of firms that are not forthcoming about their methodology, pricing, or qualifications.

Suppose a firm is hesitant or unwilling to provide details on how it arrived at a property’s value. That could indicate that the company is not using appropriate appraisal methods or that its appraisers simply lack the experience and expertise necessary to provide a reliable estimate.

 

Lack of Experience

The commercial appraisal firm you choose should offer property-type expertise that’s as broad as it is deep. Its appraisers should also be licensed and qualified to appraise your specific property. A lack of either is a significant red flag, but it can sometimes take some digging to uncover.

While a smaller and less experienced firm may be able to offer clients a more hands-on approach, larger and more complex properties can often present challenges they are incapable of overcoming. Inexperience in appraising these advanced property types can ultimately lead to an inaccurate valuation or a delayed appraisal report, both of which could impact your bottom line. When in doubt, go with a firm that has a proven track record of success.

 

Conflict of Interest

A property appraisal is an opinion of value. But that opinion is intended to be rooted in hard facts. Ensuring that your appraisal is independently produced and free of bias will ultimately result in a seamless transaction with no surprises down the road.

While not necessarily an indicator of service quality, it’s in your best interest to avoid any conflicts of interest. In commercial real estate, a conflict of interest could come in many forms. Anyone with a financial stake in the property or a pre-existing relationship with the owner or buyer should not be appraising the property. The major risk here is that the appraiser, acting out of self-interest, might artificially inflate or deflate for property’s value. For example, a family member who is also an appraiser could undervalue the property so the buyer can qualify for a more favorable loan.

At LPA, we believe the best way to support our client’s success is with principle-centered service. Our appraisers make honesty, sincerity, transparency, and trustworthiness the pillars of every commercial real estate appraisal they write and every relationship they forge. They also focus exclusively on valuation services. Unlike some firms, we do not offer brokerage services, thus eliminating many potential conflicts of interest.

 

Inadequate Resources or Technology

A lack of resources or inadequate technology can be a major red flag when selecting a commercial appraisal company. Your commercial appraisal provider should invest in the tools and technology needed to provide high-quality property valuations.

For example, if a company is relying on manual data entry or deprecated software, it can lead to inaccuracies in the appraisal report and longer turnaround times. Additionally, a lack of access to up-to-date data sources (such as Costar, MLS, and Loopnet) and analytics tools can result in an incomplete or flawed appraisal report containing no references to recent or similar transactions.

At LPA, we leverage leading technology, including our own proprietary software, to collect the largest possible pool of market data and take a deeper dive into it. Moreover, our appraisers and dedicated researchers are at the forefront of utilizing and optimizing innovative tools and approaches to valuation. We even offer incentives to team members who have ideas to streamline and perfect our already efficient operations.

Finally, inadequate technology can also result in lapses in transparency and communication. A reputable appraisal firm will have systems in place to provide regular updates and status reports to its clients throughout the appraisal process.

 

Unreasonably Low Pricing

The old adage “if it’s too good to be true…” certainly applies to commercial real estate appraisals. If a firm’s price point is unreasonably low, that can be a major red flag.

Of course, shopping around on the lower end of the cost spectrum is perfectly acceptable. However, if an appraisal firm offers products and services well below its competitors, it could indicate they lack the experience, qualifications, or resources to provide a reasonable opinion of value.

 

Important Questions to Ask a Commercial Appraisal Company

Now that we’ve reviewed the top factors and red flags to consider when researching commercial appraisal companies, here are some important questions to ask during the selection process.

Which commercial property types does the firm specialize in appraising?

• The answer to this question will help you gauge the firm’s knowledge of and experience in appraising properties similar to yours. If the appraisal firm is unfamiliar or has limited experience with relevant property types, they may not be able to provide the most accurate valuation of your property.

How long have they been in business?

• A long tenure is often a strong indicator of the firm’s understanding of the local market, the number of appraisals they have produced, the efficiency of its processes, and its reputation for proving quality service.

Can they describe their process for conducting a commercial appraisal?

• Asking this question should give you a better understanding of what the firm can do for you. Just as importantly, it can provide some additional insight into the appraisal provider’s communication practices and commitment to transparency.

Can they provide references or customer testimonials?

• Contacting references creates opportunities to learn more about how the firm serves its clients.

What is their turnaround time for appraisals?

• As noted, turnaround times can vary drastically depending on the firm’s current workload, the availability of resources, the size/complexity of the property, and the reporting product (e.g., evaluation, appraisal report, feasibility analysis, or restricted report appraisal) requested. But asking this question upfront can give you a general idea of how quickly you can expect to receive your appraisal. You may also want to follow up with a question about how the firm handles any missed deadlines.

What is their fee structure and how do they bill for services?

• You’ll want to know what you’re paying for and eliminate the possibility of any surprise charges down the road.

Can they provide a sample appraisal report?

• Sample appraisal reports can provide insights into the firm’s experience using various valuation methodologies. Additionally, sample reports will provide insights into how user-friendly — and useful — the firm’s reports are.

 

Final Thoughts

We hope this guide has equipped you with the information and advice you need to make an informed decision in your search for the right commercial appraisal company. By taking the time to analyze and evaluate your options, you can find a firm that fits your needs and exceeds your expectations.

At Lowery Property Advisors (LPA), we offer more than market-leading expertise in all property types and CRE asset classes, including those niches many other valuation firms don’t occupy. We build long-lasting, consultative relationships with our clients in Texas, the Southwest, and beyond. Our commitment to providing exceptional customer service and 100% on-time delivery has helped us become the fastest growing independent commercial appraisal firm in our region. We would love the opportunity to work with you and bid your next project. Contact us today to learn more about our commercial appraisal services.

Reports of an impending recession may have been slightly exaggerated. 

However, the fact remains that rising interest rates are cooling some sectors of the economy. Many industries associated with the built environment are still recovering from the turmoil of the last three years. These challenges — from the increasing frequency of severe weather events to red-hot inflation — have accelerated the pace of change already underway in architecture and design, commercial real estate (CRE), and construction.

What are these changes? What opportunities for evolution and growth are these changes creating, and how are construction leaders seizing them? How will these changes shape CRE’s short- and long-term future? 

In this article, we’ll discuss six construction trends that all CRE stakeholders should be monitoring and explain why.

1) Backlogs

According to an Associated Builders and Contractors report, material and labor shortages have created the highest construction backlog seen in three years. Meanwhile, 2022 ended with total construction starts increasing by 27 percent. Nowhere was this bump more evident than in multifamily. How that sector is coping with construction backlogs offers widely applicable cautions and lessons.

Some apartment industry observers believe that developers will deliver close to 500,00 new units before the end of 2023. Other experts, such as Greg Willett, First Vice President, National Director of the Research, Institutional Property Advisors (IPA) Division of Marcus & Millichap, are less certain. “Influencing that expected completion volume, developers already have been using available resources to build as fast as possible, and 2020-2022 annual deliveries held steady right around the 350,000-unit mark,” he recently told GlobeSt.com. “Completing another 150,000 to 200,000 units on an annual basis without a sizable expansion of the labor pool seems like it simply can’t happen.” 

Overall, this situation represents a win-win for contractors and some landlords but a challenge for anyone ready to break ground on a new project. Until contractors clear their backlogs, even shovel-ready projects may have to be postponed. Or, as Greg Willett summarizes the situation in multifamily: “Holding 2023’s completion total below the scheduled volume will yield slightly better results for vacancy stats as well as pricing power. Still, in many instances, it’s going to be tough to get the new projects through the initial lease-up process.”

2) Digital Building Materials 

Supply chain disruptions caused by the pandemic created shortages of lumber, steel, concrete, and other building materials. These shortages persist today as the war in Ukraine, continuing COVID restrictions, and labor shortages in the shipping industry continue to strain supply chains. 

Cody Nix, Managing Partner at 8th & Main in Midlothian, TX, explains that contractors are holding a mixed bag. “Concrete continues to increase. Lumber supplies have rebounded, and prices have retreated. In 2022, the lumber packs we purchased would be in the low to mid-$20s/SF. Now our lumber packs are around $15-16/SF.” 

But the limited availability of another material may be holding back builders. The global semiconductor shortage is delaying commercial projects too, and the construction industry is now competing with the auto industry for these necessary components. 

Modern building infrastructure requires microchips for connectivity, HVAC, and security systems. Additionally, as Cody observes, “Some appliance brands are still difficult to procure.” 

Luckily, relief is on the way. The Chips and Science Act of 2022 offers semiconductor research, development, and production incentives to American manufacturers. Global Foundries, Intel, and Texas Instruments are among the companies breaking ground on new fabrication plants or expanding the capacity of their current facilities. However, that help won’t be arriving any time soon. It will be at least three years before a significant number of American-made chips hit the market. 

3) Modular and Manufactured Construction

The Modular Building Institute reports that in 2020, permanent modular construction claimed only a 5.5 percent market share in North American commercial starts. Yet off-site construction would seem to be the solution to addressing labor shortages, eliminating waste, and meeting the growing demand for “green” buildings. 

Why haven’t builders embraced manufactured construction? Given the current labor shortage, it wouldn’t be unreasonable for stakeholders to recognize the advantages of leveraging assembly lines operated by a few skilled laborers. But that means modular building requires that contractors and subcontractors learn new ways of plying their trade. As it stands, modular production methods help feed a perception that “stick-built” buildings are superior in quality to manufactured alternatives. 

A change to modular construction also requires an upfront investment. To erect factory-built units, construction companies must invest in — or lease — new assembly and transportation equipment. Nevertheless, this investment should show a positive return, as off-site construction can lower costs and speed up project timelines. 

Off-site construction can compress schedules by as much as 50 percent, according to a 2019 McKinsey report. Manufacturers can achieve such efficiencies because both design and fabrication benefit from modular technology. Design firms build libraries of modules to be reused, and construction proceeds more quickly because workers can work in multiple shifts in an enclosed, safe, and climate-controlled manufacturing environment. Also, manufacturing can proceed parallel to foundation construction. 

Given the current labor and materials shortages, the commercial building industry may be poised to rethink its negative perceptions of factory-built buildings. But that hinges, in part, on trends in CRE. 2022 was a record-breaking year for adaptive reuse. If this trend continues, modular interior construction solutions may prompt stakeholders to be more open to building entirely manufactured structures. 

4) An Aging Workforce 

Baby Boomer retirements have been the big story in the labor market for the past decade, as the oldest members of the post-war generation began to reach retirement age in 2012. Since then, the percentage of Boomers retiring has increased each year. That trend only accelerated during the pandemic. According to a U.S. Chamber of Commerce report, the share of construction workers aged 55 and older has risen from 11 percent to 19 percent in just five years.

These skilled workers are taking their expertise with them when they leave the labor force — and many of them aren’t being replaced. This is a challenge for recruiters across all industries, but particularly in construction. Compounding the difficulty are changing technology and consumer demands. 

The industry is evolving to streamline processes, reduce waste, and eliminate inefficiencies by utilizing new technologies such as automated construction equipment, 3D Printing, drone technology, data collection applications, building information modeling (BIM), and virtual and augmented reality programs. Simply put, construction needs younger talent whose training differs significantly from what their senior counterparts received. 

The skilled trades are not disappearing, but new hires must also become adept at using the latest construction tools. Meanwhile, the federal government is getting behind digital technology in construction, with funding for workforce and technology development included in infrastructure spending. It’s not hard to imagine a near future in which a combination of this innovative technology and manufactured construction results in a leaner, more efficient workforce.

5) The Need for More Affordable Housing

Three years ago, available housing inventory had still not fully recovered from the caution developers exercised after the 2008 economic crash. But the onset of the pandemic in 2020 prompted urban dwellers to flee megacities like New York and San Francisco to resettle in smaller metros, suburban towns, and rural areas. The resulting surge in demand for single-family housing, coupled with pandemic-created construction delays, pushed the cost of single-family homes up as much as 70 percent in some markets. On average, rents across the country rose 15 percent. 

Stimulus payments and eviction moratoriums helped reduce homelessness during the pandemic. Still, the current mix of low inventory and soaring housing costs threatens a spike in homelessness this year. The U.S. Department of Housing and Urban Renewal (HUD) has awarded $315 million in grants to address the crisis. Investors can also expect states, cities, and NGOs to inject funds into the multifamily market.

The demand for single-family homes has cooled slightly with rising mortgage rates, putting more pressure on the multifamily market. As always, investors will want to follow the money. The migration during the pandemic away from coastal centers of commerce to Sunbelt cities such as Dallas, Phoenix, Salt Lake City, and Florida’s Cape Coral may be part of a permanent population shift. That jibes with Cody Nix’s recent experience. “Our deal traffic has started to increase as the market appears to be digesting the new rates with more optimism for the rest of 2023,” he says. “We feel the DFW market will outperform the widely reported macroeconomic data.”

6) ESG

Societal forces always play a role in how industries operate. The increase in severe weather events has raised public awareness of climate issues. Inefficient systems whose carbon emissions measure in the tons are now considered dinosaurs. And both businesses and individual consumers are shopping for sustainable, earth-friendly building solutions. 

Engineering and construction firms are responding to this demand by adopting Environmental, Social, and Governance (ESG) standards, a multi-pronged approach to sustainable and socially responsible industry practices. The challenge for developers and builders is how to maintain these standards across projects that involve an at-times mind-boggling array of subcontractors. Managers will need to adopt BIM technologies to achieve the visibility required to monitor such projects. 

This brings us back to the need for construction teams that understand the new equipment and software. The U.S. Department of Energy is funding training and assessment centers focused on energy-efficient construction. It has awarded grants to nonprofit organizations that collaborate with employers to deliver training in energy efficiency and renewable energy. Clearly, stakeholders who understand that ESG is not a passing fad will be better positioned to build assets that will command a premium on the market now and hold their value for years to come. 

By engaging in thoughtful conversations with their colleagues in adjacent industries and monitoring trends that affect property values in real time, our commercial appraisers can better understand what’s happening in some of the nation’s hottest — and most rapidly expanding — CRE markets. Keeping their ear to the ground and their eyes on the horizon also allows them to be nimble and deliver their insights on time, every time, if or when construction challenges affect any given project. 

Contact us today to connect with any of the valuation experts at any of our 8 Texas locations: Dallas, Fort Worth, Austin, Houston, San Antonio, El Paso, Lubbock, and Corpus Christi.

Last month, we asked LPA thought leaders Jake Allen (Director, LPA Lubbock), Drew McFarland (Senior Managing Director, LPA Dallas), and Mark Lowery (Principal and CEO) to discuss what they expect from the commercial real estate (CRE) industry in 2023. 

Overall, Jake, Drew, and Mark believe CRE will continue to attract buyers and investors over the next 12 months, with industrial and multifamily properties across the Southwest continuing to outperform asset classes in other markets. But they also agree that a big question is looming: will 2023 be as up-and-down as 2022 was? 

So we asked the LPA Team members who take daily deep dives into market data and trends — Senior Associate Researcher Andrew Burns and Associate Researcher Ashley Travis — to share their unique expertise and perspectives on this and several related questions. 

The Role of Research at LPA

Before we reveal what Andrew and Ashley see on the horizon, we want to provide some important context for their observations and conclusions: a full account of their day-to-day life at LPA.

The bulk of Andrew and Ashley’s work consists of: 

• Extracting transaction and market data from multiple sources, both industry-standard (CoStar) and niche.
• Aggregating that data.
• Organizing that data and attaching it to specific appraisal projects in LPA’s proprietary database. 
• Constantly updating that data to keep it as current — and relevant — as possible.
• Visualizing this data in the form of tables and charts that populate LPA’s appraisal reports.
• Working on special projects. Such projects have included:
  • Conducting — “from scratch” — market analyses for new asset classes and locations. 
  • Managing an investment survey sent to 400-plus stakeholders.
  • Creating a new standard element of all LPA appraisal reports: an economic update tracking unemployment, energy prices, etc., and noting these economic factors’ potential impact on property values.

“Our goal is to give the appraisers more bandwidth so they can work more efficiently,” Ashley summarizes. How much more efficiently? Andrew has done the math. “On average, we’re working 10 to 15 projects a day,” he says. “Over the course of a year, that’s more than 3,000 projects where the appraiser can focus on providing their analysis and unique insights.” 

Staffing a dedicated Market Research Team has been instrumental in helping LPA grow while maintaining its reputation for 100-percent on-time delivery and exceptional customer service. An anecdote from Andrew illustrates how. “The typical turnaround time for an appraisal report is approximately three weeks. But as the economy has softened and transaction volume has slowed, we’ve taken on more projects that need to be turned around in 1 week,” he says. “Being able to lean on a dedicated research team gives our appraisers the agility they need to meet those accelerated deadlines.”

1) Based on its 2022 performance, which property type/asset class is facing the strongest headwinds entering 2023?

For Andrew and Ashley, the answer is crystal clear: office. 

This is partly because office properties are caught up in what may prove to be the most significant and enduring cultural change to occur during the pandemic: the shift to fully remote and hybrid work. 

A study conducted by the U.S. Survey of Working Arrangements and Attitudes (S.W.A.A.) in December 2022 found that employees prefer to work from home three days a week. Their employers, however, would prefer to see that number drop closer to two days per week. Although, as The New York Times reports, “that’s not a big gap in expectations,” hard stances against remote work taken by prominent business leaders like Elon Musk and Bob Iger suggest otherwise.

“Analysts at Moody’s found that office vacancies dipped in 2022 but are not yet back to pre-pandemic levels. So, companies are going back to the office. But they’re proceeding slowly, and not as many are returning.” Andrew posits. “It will be interesting to see what companies will do. Will they issue ultimatums or offer perks and amenities to get employees interested in office life again?”

However, time may be running out. Ashley believes 2023 will be “a make or break” year for office. “Many leases are expiring, meaning vacancy rates could spike, driving down the value of surrounding properties,” she cautions. “A lot is riding on the decisions corporate executives make in the coming months. State-of-the-art Class A buildings with modern amenities should continue to perform well, but demand for older buildings will probably be soft. We may even see some properties that would have been considered Class A before the pandemic downgraded to Class B.”

2) Which asset classes might actually benefit should inflation continue to climb in 2023?

Andrew expects industrial to do as well, if not better, in 2023 than in 2022. Why? “As companies continue to increase the production of goods that have been in demand since bouncing back from the pandemic, they will need to continue renting or buying warehouses to store that inventory. Because of this and the growth of e-commerce, industrial looks to be an asset class that can hold its value even if consumer activity causes inflation to heat up,” he explains.

Adds Ashley: “Many retailers are likely switching to a strictly e-commerce presence and need fewer storefronts. But they’re replacing them with distribution centers and last-mile delivery services.”

From 2017 through 2021, the last-mile delivery segment achieved a compound annual growth rate (CAGR) of more than 18 percent. Third parties specializing in freight and trucking have benefitted the most from the consumer demand for same- and next-day shipping, but logistics-as-a-service providers are poised to reap more of those benefits in 2023. At the beginning of the year, Amazon announced that it would be significantly expanding its Buy with Prime program, which “allows merchants to pay Amazon a fee to store and deliver products, handle returns, and process payments.” Amazon certainly has warehouse space to spare, having acquired over 260 million square feet of industrial since 2020.

3) Which markets in the Southwest are primed for continued growth in 2023?

When ranked according to such key metrics as “workforce,” “cost of doing business,” and “technology and innovation,” Texas is one of the most business-friendly states in the U.S. Even in the face of a possible recession, economists remain bullish on Texas because of its low unemployment and population growth.

These trends most favor the Lone Star State’s major metropolitan areas. “As Texas’ big cities draw more and more people to relocate there, we expect to see increases in almost every asset class. Those major metros also have the infrastructure to handle the increased demand for years to come,” observes Andrew.  

Among those asset classes, Ashley sees the greatest potential for growth in multifamily in Dallas-Fort Worth, Houston, Austin, and San Antonio. “The multifamily sector shows no signs of slowing down as many people migrate to the area,” she says. “Many consumers will remain renters as well, considering current home prices and high interest rates. This leads to greater demand for affordable housing and apartments.” 

Waco, an up-and-coming market in Central Texas, may be leading the way in satisfying that demand. Last September, its Tax Increment Financing (TIF) Zone board allocated almost $3 million to “subsidize the construction of workforce housing” on city-owned land.

4) Which proptech innovation will have the most significant impact on the industry in 2023? 

Ashley sees the greatest potential in the industrial metaverse and digital twins. “Many multifamily properties already use 3D models to allow stakeholders to view spaces virtually and take measurements,” she explains. “As other sectors adopt virtual and augmented reality technology, it will enable appraisers to save time on inspections and work more efficiently.”

Andrew, on the other hand, believes robotic process automation (RPA) and advanced data orchestration will alter the CRE landscape even more than they already have. “We’ll see an increase in the use of artificial intelligence (AI) in 2023 as it becomes more highly developed and more companies lean into using it,” he predicts. “Some companies are also already connecting their AI functions to the blockchain so they can secure this automated data more efficiently. It’ll be interesting to see how AI might help our appraisers be even more accurate and efficient.”

5) What one word sums up the commercial real estate outlook for 2023?

Andrew’s choice is “competitive.” Why? “As transactions decrease, demand for the most up-to-date data and trends will increase. Investors want the latest information to help them navigate what’s always a volatile market,” he asserts. “At LPA, we understand that we need to stay on the cutting edge of technology and integrate it with our business and systems.”

Ashley opts for “resilient,” and her reasons have much to do with technology, data, and the enduring value of business intelligence. “The CRE industry has always been and will always be cyclic,” she notes. “Using innovative proptech and better data, the industry will demonstrate that it’s capable of navigating challenges and adapting to present economic conditions.”

LPA’s valuation services span the complete spectrum of commercial real estate property types, including those unique asset classes that require additional attention, research, and assessment.

• Retail, from strip centers to restaurants, bars, and taverns.
• Office, including suburban offices and medical and dental buildings.
• Industrial: manufacturing facilities, warehouses, distribution centers, data centers, and more.
• Multifamily: apartments, condominiums, townhomes, duplexes and triplexes, senior housing, mobile home parks, etc.
• Developments and subdivisions, including age-restricted and master-planned communities.
• Self-storage facilities (indoor, outdoor, climate-controlled, etc.).
• Hotels, motels, extended stay lodging, resorts, and casinos.
• Car washes, auto repair shops, auto dealerships, and gas stations.
• Special purpose: schools, places of worship, sports facilities, assisted living facilities, parking lots, going concerns, and more.
• Vacant land, from greenfields to lakefront properties to forest holdings.
• Right-of-Way and Eminent Domain

No matter what your commercial property valuation needs might be, the regional experts on our Appraisal and Market Research Teams will provide you with accurate, USPAP-compliant reporting and on-time delivery every time. 

Contact any of our 8 Texas locations today to learn more about what we do and the clients we serve.

In many ways, the story of commercial real estate in 2022 is a tale of two years. 

Despite the outbreak of war in Europe and yet another COVID-19 surge, almost all asset classes outperformed expectations in Q1 and Q2. The chief reason? The market’s demand generators, such as low unemployment, the high cost of the average single-family home, and robust consumer spending — buoyed in part by another round of American Rescue Plan stimulus checks — continued humming as loudly as they did in 2021. Consider the following statistics: 

• Between April 2021 and April 2022, 551 million square feet of industrial space were sold and/or leased across the United States, setting a new record. (Marcus & Millchap)
• As of June 2022, the national median rent for an apartment crossed the $2,000 threshold. In one Texas market — Austin — rent had risen 48 percent in twelve months. (Redfin)
• In Q2 2022, the average asking rent for shopping centers rose by 1.2 percent. Meanwhile, shopping center vacancy rates fell to their lowest level in 15 years: 6.1 percent. Consumers acting on their pent-up desire for in-person shopping experiences helped this beleaguered sector show such resilience. (Cushman & Wakefield) 

But the script flipped in Q3 and Q4. The market’s strong fundamentals proved to be no match for the rising cost of capital, driven primarily by interest rate hikes intended to curb inflation. In October, the Mortgage Bankers Association (MBA) forecast that multifamily lending would see a 7 percent year-over-year drop by the time the books were closed on 2022. About that same time, the National Association of Realtors (NAR) reported that “about 1.34 million more square feet of office space was vacant and placed on the market than were leased” between July and September.

What does all this mean, if anything, for 2023? What forces and factors are most likely to affect transaction volumes, net absorption rates, and property values in the coming year? For answers to these and other questions of particular concern to CRE stakeholders, we asked some of the most astute observers we know: LPA’s own commercial appraisers. Keep reading to access their insights and expert opinions.

Which 2022 Trends Should Stakeholders Be Paying the Most Attention to in 2023? 

“Interest rates are at the top of everyone’s mind, and I’m no different,” says Jake Allen, Director of LPA Lubbock. “The cost of financing affects activity levels across the entire real estate market.”

On December 14th, 2022, the Federal Reserve raised its benchmark interest rate by another 50 basis points. The bad news: the federal funds rate is now the highest it’s been since before the global financial crisis of 2008 – 2009. The good news: this increase was lower than expected. In fact, it broke a streak of four straight three-quarter point hikes dating back to June 2022. Most market experts believe the federal funds rate will top out at around 5 percent sometime in 2023.

Drew McFarland, Senior Managing Director, LPA Dallas, is closely monitoring both inflation and interest rates. But he’s looking at both through a slightly different lens. “Stakeholders should be on the lookout for rising construction costs as well,” he advises.

Adds Mark Lowery, Principal and CEO, “2023 is a potential wake-up call on cap rates.” How so? “Most in valuation theory agree that cap rates move in tandem with interest rates. While it’s not always a direct or instant correlation, the two clearly impact one another,” Mark explains. “Most CRE is leveraged, and when market participants are making decisions, their cost of capital is always a consideration. Right now, deal flow has slowed. Many are sitting on the sidelines, holding onto their capital and waiting to see what happens.”

Jake concurs. He also places the current slowdown in a broader context — one that gives him cause for optimism. “The current slowdown hasn’t come close to what we saw at the height of the pandemic in 2020,” he observes. “I believe most market participants share this sentiment and are confident that conditions will soon improve.”

What Other Factors Are Likely to Influence Commercial Real Estate Markets in the Coming Year?

Mark expects that consumer behaviors will continue to shape commercial real estate markets nationwide. But the buying habits he’s talking about are not specific to real property transactions. Citing the seemingly insatiable demand for industrial, Mark predicts that “the last-mile demand generated by the continued expansion of online commerce will continue to prop up that asset class.”

Drew, whose office serves the fourth-largest metropolitan area and the hottest commercial real estate market in the United States, believes the shifting employer-employee power dynamic will continue to be impactful. “The way work is carried out is still evolving following the pandemic,” he says. “This continual change can directly influence the need for commercial real estate. Office will likely remain soft due to the work-from-anywhere trend.”

For Jake Allen, however, the cost of energy — a significant contributor to the summer 2022 spike in inflation — is always top of mind. “Oil and gas prices directly affect the West Texas markets in which I specialize,” he notes. “Those prices don’t just affect the transportation industry. They affect just about every part of Texas’ infrastructure.”

Which Asset Classes Will Perform Better in 2023 Than in 2022? Which Will Perform Worse?

Both Mark and Jake are bullish on multifamily. “With the high cost of financing, I believe multifamily properties will see the biggest growth,” Jake says. He adds that he’s “keeping a close eye” on the single-family rental market. Although the housing market has cooled considerably since then, as of August 2022, single-family built-for-rent construction starts were up 60 percent YOY. What remains to be seen is whether institutional investors continue to bet big on this asset class. Some indicators point to several key players looking to cut their losses if not leave the space entirely.

Meanwhile, Mark points out that “multifamily has remained frothy for a number of years.” But he also sees reason for cautious optimism. “Cap rates have compressed low enough that increased interest rates will undoubtedly soften this asset class,” he says. “There will be heavily leveraged investors who will undoubtedly get stuck with their hand in the proverbial cookie jar.”

How Can Appraisers Keep Current with Emerging Commercial Real Estate Trends in 2023?

Jake says that keeping in front of emerging trends starts with continually honing his analytical skills. He is on track to earn his MAI designation in 2023 and plans to continue his studies and classwork even after achieving the profession’s “gold standard.”

Drew emphasizes the more informal education that comes from being a good colleague and active citizen. “Staying connected and active in local industry groups furthers my understanding of the field and the dynamic market we serve,” he says. Jake agrees, sharing that “the day-to-day of appraisal requires conversations with a wide variety of market participants. I believe speaking with them is incredibly educational.”

As Principal and CEO, Mark has already created a growth plan to ensure that LPA can maintain a front-edge understanding of trends as they emerge. “We’re doubling our research efforts to provide our clients the most up-to-date, accurate, and ethical opinions of value possible, and we’re significantly expanding our Market Research Team,” he reveals. But, for Mark, research entails much more than crunching numbers. Like Drew and Jake, he believes it involves building lasting relationships with trusted partners. “There’s no substitute for the human factor,” he explains. “There’s just no foolproof substitute for calling and emailing market participants.” 

Next month, we’ll hear from Andrew Burns, Senior Associate Researcher, LPA Dallas, and Ashley Travis, Associate Researcher, LPA Dallas. They’ll discuss what they’ve learned from the volatility of 2022, what they’re forecasting for 2023, and how they’re using every conceivable tool to deliver actionable business intelligence to their clients.

LPA operates multiple offices in Texas, and our professional network extends far and wide. We’ve likely appraised a commercial property in almost every city and town in the Lone Star State — and we’re proud to say so. We also provide commercial real estate appraisals outside Texas, and our market footprint continues to grow rapidly. 

Whether you’re located in Dallas, Fort Worth, Houston, Austin, San Antonio, Corpus Christi, Lubbock, El Paso, New Mexico, Oklahoma, Arkansas, Louisiana, or somewhere in between, we look forward to providing you with an exceptional customer service experience featuring best-in-class research, principled expertise, open communication, and 100% on-time delivery. To learn how you can put our Team’s market knowledge, geographic competencies, and property-type expertise to work for you, contact any of our 8 locations today.