By Leor Hemo and Ken Richardson, Vantage Commercial Real Estate
The commercial real estate market is facing several challenges that are impacting different sectors and creating difficulties for investors and property owners to plan ahead, analyze deals and make long-term decisions. Four critical problems currently impacting the local real estate market are the uncertainty surrounding interest rates making it difficult to predict the cost of financing, the persistent impact of the work-from-home environment on office space demand, banks imposing stricter lending standards and lower loan-to-value ratios, and a decline in rental rates. However, despite these challenges, the industrial sector is currently thriving, and there is still high demand for land for residential and industrial development. The increase in warehouses and distribution centers in recent years is expected to continue in 2023/2024 as e-commerce continues to grow and the demand for online shopping increases.
In the business brokerage sector, the market conditions remained favorable for sellers in the second half of 2022, with continued interest from buyers and a robust demand for small and mid-sized businesses. According to BizBuySell’s Q2 2022 Insight Report, there was a 22% increase in small business transactions in the first half of 2022 compared to the same period in 2021 indicating the conditions continued to be favorable for sellers.
The leading buyers in the business brokerage market continue to be first-time buyers and serial entrepreneurs. However, there has been an increase in the number of private equity firms and family offices entering the market, looking for opportunities to acquire profitable and growing businesses. This trend is expected to continue in 2023/2024 as these firms seek to diversify their portfolios and find new sources of revenue.
The main reasons for selling a business remain retirement and a lack of interest from the next generation. According to the Exit Planning Institute’s 2022 State of Owner Readiness Report, over 70% of business owners are over the age of 50, and many are looking to sell their businesses as part of their retirement plans. The report also found that 82% of business owners have no written plan for transferring their business to the next generation creating a significant opportunity for business brokers to work with owners and develop exit plans for their businesses.
Overall, the commercial real estate market and the business brokerage market are facing different challenges, but both markets are expected to continue to grow and evolve in 2023/2024 with favorable market conditions for sellers and a robust demand from buyers. However, as with any market, there are risks and uncertainties, and it is important for investors and business owners to work with experienced brokers who can help them navigate the market and achieve their goals.
Leor Hemo is president & chief executive, and Ken Richardson is VP at Vantage Commercial Real Estate.