Many CRE professionals can agree that 2022 was a challenging, unpredictable year. Although two years had passed since the onset of the pandemic, many firms still felt its effects – both financially and operationally. Industry-wide, rising interest and caps rates plus increasing costs of labor and goods contributed to lower asset values and increasing operating expenses.
In 2023, we continued to experience a reset to market-based interest rates and pricing. This shift affected the actions and strategies around cashflow and cost of capital and impacted asset valuations, deal flow, and transactions.
As we move into 2024, proactive planning can help you navigate any changes and gain control over the outcomes of your portfolio.
Diversify Your Portfolio
By diversifying your portfolio across different property types, you can reduce the impact of market factors impacting your portfolio. For instance, if the office sector faces a downturn due to changing work trends, a diversified portfolio containing retail, industrial, or multifamily properties can act as a buffer, mitigating potential losses. This risk reduction strategy enables you to have multiple pillars supporting the overall stability of your portfolio.
Geographic diversification creates another opportunity to build a resilient portfolio. Individual CRE markets often experience fluctuations due to changing economic conditions, regulatory changes, or demographic shifts. By investing in properties across different geographical areas, you can protect your portfolio against regional economic downturns. This approach provides a broader safety net, ensuring that the performance of one area doesn’t impact the entire investment portfolio.
Leverage Technology for Informed Decision-Making
In today’s data-driven world, staying ahead requires harnessing the power of technology. Utilize advanced analytics tools and benchmarks to gather real-time, actionable market insights. Understand the nuances of supply and demand, rental trends, and economic indicators. Armed with this information, you can make informed decisions that position you ahead of the curve.
Traditional methods of portfolio performance analysis often involve time-consuming processes like mining through piles of scattered data. However, in leveraging asset management software, like Lobby CRE, you can track market trends, property values, and emerging opportunities in real-time. As a result, you can make quicker, more informed decisions, capitalize on favorable market conditions, and better navigate potential risks.
Focus on Sustainable Cash Flow Management
A resilient cash flow strategy not only helps you weather economic storms but also positions you for potential acquisitions during opportune times. A successful cashflow management strategy requires continuous monitoring and adaptation. Be prepared to adjust your strategy in response to changing circumstances, allowing you to proactively address potential threats and capitalize on emerging opportunities.
We don’t have a crystal ball to tell us exactly where the market is heading in 2024 and beyond. But, we can continue to look at trends to help us determine next best steps and strategies to stay afloat in the market. Download the eBook for additional insights you can use as you navigate today’s market and make decisions to help your firm survive until 2025!
