Investors Should Consider Changes in Commercial Real Estate: Morgan Stanley

The accelerated use and adaptation of technology and even high inflation are factors that influence the recovery of this real estate division.

Investors should be on the lookout for possible and potential long-term effects on commercial real estate, after the pandemic pushed hard for the use of technology to facilitate transactions, evolving preferences around remote work, online shopping, as well as rising costs for homeowners, James Flaum warned.

The global head of Morgan Stanley's commercial real estate lending group noted that while they are "optimistic about commercial real estate," relevant questions remain regarding structural changes in the industry and the possible obsolescence of some commercial real estate after the pandemic.

Even this decline was already seen coming in this business, specifically within the U.S. market.

So the specialist recommended that "Investors should be aware of factors that could have potential long-term effects on this niche market, including any effect that inflation may have on the Federal Reserve's (FED) near-zero interest rates."

James Flaum pointed out that too high inflation could cause the U.S. central bank to raise interest rates, which may also hinder the rebound in commercial real estate. 

"Near-zero rates make it easier for commercial real estate borrowers to access credit, and more loans help the market recover faster and if they go up the price of money becomes more expensive," he said.

Referring to the adoption of technology that the pandemic accelerated in commercial real estate, he considered that it is a trend that will likely continue and help the recovery.

The global head of Morgan Stanley's commercial real estate lending group said retail is another part of the market that is recovering strongly as people return to shopping malls.

But he cautioned that even so, investors should monitor the growing and continuing demand for e-commerce compared to traditional retail.

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