Navigating Rising Vacancies in Commercial Real Estate: Strategies for Investors

Rising Vacancies in Commercial Real Estate: How to Navigate the Shift

Vacancy rates are rising across several CRE sectors, forcing investors to rethink strategies. This insight article explores how to adapt to rising vacancies in commercial real estate, what’s driving the trend, and how to uncover opportunity in a shifting demand landscape.

Why Are Rising Vacancies in Commercial Real Estate Accelerating?

According to CBRE’s 2024 U.S. Real Estate Outlook, office vacancy rates hit a record 18.9% in Q1 2024. Industrial and retail sectors are also seeing pressure from overbuilding and shifting consumer behavior. Key drivers include:

Remote and hybrid work models reducing office demand
E-commerce slowing retail absorption
Rising interest rates deterring new leasing activity

Strategic Responses to Rising Vacancies in Commercial Real Estate

1. Reposition or Re-Tenant Strategically

Vacant space doesn’t have to be a liability. Consider:

Dividing large spaces for multiple small tenants
Targeting medical, education, or service-sector uses
Re-zoning for mixed-use or residential conversions

2. Invest in Smaller Commercial Real Estate Deals

As noted in our article on smaller commercial real estate deals outperforming big-ticket properties, the general commercial sector is absorbing space more effectively. Small-cap assets often:

Attract local tenants with stronger retention
Avoid institutional leasing delays
Provide quicker leasing cycles and flexibility

Learn more about this trend in our article on why small CRE deals are outperforming large properties.

3. Target Undervalued CRE Assets Affected by Vacancy

Vacancies can signal value opportunities. Investors should look for mispriced assets in strong submarkets. Learn how to evaluate these opportunities in our guide on finding undervalued commercial real estate assets.

4. Embrace Flexible Leasing to Fill Vacancies

Long-term leases are out; flexibility is in. Consider:

Month-to-month or 6–12 month terms
Incentives like TI allowances or free rent periods
Pop-up or seasonal tenant strategies

Case Example: Filling Office Space Amid Rising Vacancy

A CRE owner in Denver faced 40% vacancy in a Class B office building. By marketing the space to creative industries and freelancers with 3-month trial leases, occupancy increased to 85% in under 9 months. Flexible design and aggressive marketing proved more effective than traditional tenanting.

CRE Vacancy Outlook: Sector-by-Sector Performance

While vacancies are rising overall, not all asset classes are equal. CBRE notes that suburban retail and neighborhood centers are seeing lower vacancy rates and more stable leasing than urban office or large-format industrial.

Meanwhile, JLL’s 2024 CRE Outlook advises a “selective optimism” approach—focusing on local economic drivers and tenant adaptability.

Final Takeaways on Rising Vacancies in Commercial Real Estate

Flexibility in space and leasing terms is critical
Smaller deals and undervalued properties offer resilience
Target tenant types aligned with current demand shifts

Vacancy isn’t the end—it’s a signal for change and adaptation. The most agile investors will be the ones who come out ahead.