The economic landscapes of communities nationwide are as unsettled as ever. One facet of this reality is the state of commercial real estate. Beginning with government-imposed shutdowns and social distancing during the COVID-19 pandemic, businesses and individuals have changed their habits, incorporating remote or hybrid work practices into daily life. As a result, the need for large corporate offices or brick-and-mortar stores has declined. Despite returns toward pre-pandemic norms, the current commercial real estate landscape presents a troubling future. Economic development organizations must account for this potential impact on their communities and be proactive to address the new normal.
Debt and vacancies
Many financial experts exhibit serious concern about the potential impact of the current state of commercial real estate. The Mortgage Bankers Association has reported approximately $1.2 trillion of commercial mortgage debt will mature through 2025. The most troubling is office space, where CommercialEdge indicates nearly $150 billion in mortgages on office buildings are maturing by the end of 2024. Vacancies continue to increase, with the national rate rising to 18.2% in November.
With debt payoffs on office loans falling to historic lows, overdue commercial property loans at a ten-year high and increasing vacancy rates, alternative strategies will be required. Smart economic developers know unique opportunities exist in economic downturns. So the question is, what can be done and who can help?
Community leaders are struggling with what to do. The worldwide pandemic illustrated the creative thinking local leaders used to keep their people and businesses afloat. Utilizing street spaces for outdoor dining, increasing broadband access and remote work have presented new opportunities. That same thinking can be applied to the growing presence of empty commercial spaces.
With construction starts down more than 40% in 2023 from 2021 and 2022, there are fewer new buildings for interested parties to utilize. Proactive business attraction, retention, and expansion initiatives will help fill vacancies and offer a positive path forward.
Sustainable funding is vital to tackling new situations, and the fundraising experts at Convergent Nonprofit Solutions can help. Last year, Convergent partnered with 44 clients in 18 states with capital campaign goals ranging from $500,000 to $20 million. One example is the Roanoke Regional Partnership and their comprehensive Thrive 2027 strategic plan. This 5-year public/private funded plan encompassed many facets, including commercial real estate. Convergent has helped Partnership raise over $16 million over the past 12 years, which has led to $350 million in capital investment and a 10% increase in population growth from in-migration. Convergent’s unique expertise can help your community wade through the potential commercial real estate storm, like the examples below.
Fix two problems at once
The troubled commercial real estate picture coincides with how to revitalize downtown areas. One of the most dire needs facing communities is housing. Communities with surplus office or retail space but insufficient housing should consider rezoning for conversion. That happened in Cleveland when the 52-story Terminal Tower was converted from office space to 652 individual apartment units.
Federal options are available to assist with transitioning commercial real estate to residential with the new Housing Supply Plan. The Commercial to Residential Federal Resources Guidebook is an essential resource. Some programs include billions in lending capacity to finance housing development, conversions and commercial-to-residential use projects.
Rethink your downtown
Looking beyond housing, adaptive reuse of downtown areas can drive economic development. Downtown revitalizations can lead people to work and visit. Palestine, TX Main Street Program has sought to attract residents and visitors to downtown through unique promotions. Its annual “Imagine the Possibilities” tour connects potential investors, entrepreneurs, developers and residents while spurring investment in historic buildings for new uses while maintaining their character and charm.
Milwaukee Downtown Business Improvement District #21 has sought opportunities to bring people to its downtown areas beyond to live or work. It utilizes assessments to fund specific initiatives to create a clean, safe and friendly downtown. Along with the promotion of year-round events, they have led to an increase in downtown visitors seeking to patronize the businesses present, leading to further investment.
Turn to Proven Leaders: Convergent Nonprofit Solutions
In difficult times, experts can guide the way. Convergent Nonprofit Solutions understands the importance of economic development organizations and their role in communities nationwide. Local economies are the key to fueling economic mobility on a larger scale. The fundraising experts at Convergent Nonprofit Solutions can help gain the reliable funding necessary to achieve those goals.