https://thebusinesstimes.com/local-housing-summit-addresses-housing-crisis/
Although the Local Housing Summit focused on residential housing, these dynamics have ripple effects across the commercial real estate (CRE) market. We can take a dive deeper to understand how these trends may affect investors, landlords, and tenants.
When housing becomes unaffordable or unavailable, businesses across sectors such as healthcare, education, hospitality, and light industrial face growing challenges in attracting consumers and retaining workers. This strain on the local workforce leads to slower population growth and reduced consumer activity, which directly impacts demand for office, medical, and service-oriented retail spaces. For commercial real estate investors, these conditions can result in longer lease-up periods, lower rent escalators, and an increased need for tenant allowance particularly in asset types that depend heavily on a stable, locally based workforce.
Many small businesses depend on nearby affordable housing to retain a reliable workforce. When employees are placed out of the communities where they work, labor shortages can lead to reduced hours, diminished services, or even business closures. This disruption can have a ripple effect on local retail centers, resulting in higher tenant turnover or increased vacancy rates. For investors, these conditions underscore the growing importance of tenant creditworthiness and securing longer-term leases.
Other fields such as manufacturing and industrial/flex users perform well in markets that offer affordable land, larger parcels, and minimal neighborhood resistance to development. However, rising land development costs among other delays are limiting new industrial supply even in Mesa County. As a result, tenants seeking operational efficiency may be more inclined to pay a premium for well-located, move-in-ready flex or warehouse space. This dynamic presents a strong opportunity for landlords with existing inventory to capture higher rents and stable occupancy in a tightening market.
As residential developers grapple with steep material costs and regulatory burdens, commercial projects are experiencing similar pressures in relation to inflation. Impact fees, updated energy codes, and infrastructure requirements (sidewalks, curbs, and traffic studies) add to the overall development cost. As a result, many developers may delay or cancel new commercial builds, leading to a tighter future supply. This limited pipeline could enhance the value of existing, stabilized assets. However, landlords of newer properties may benefit from reduced competition while also facing rising operating and maintenance expenses associated with modern building standards.
Markets like Fruita are setting a positive example by deferring impact fees, streamlining approval processes, and proactively collaborating with developers. These kinds of local initiatives can significantly accelerate the timeline of commercial real estate projects and make certain municipalities more attractive to investors. As local policy environments play an increasingly important role in shaping project feasibility and profitability, investors are wise to carefully evaluate regulatory conditions when underwriting risk and projecting returns.
Although, the residential housing crisis is far from isolated, it is closely intertwined with the health and trajectory of the commercial real estate market. As housing affordability challenges continue to impact workforce stability, economic growth, and local business ecosystems, CRE investors, landlords, and tenants must adopt a proactive approach. Investors who choose cities with supportive local leaders, stay flexible with leases and project timelines, and focus on good locations with a mix of tenants and adaptable buildings will be in the best position to handle market ups and downs and succeed over the long term.