Commercial Real Estate Is Struggling—Should Residential Investors Pay Attention?

Headlines about distress in commercial real estate are hard to miss right now. From office towers in San Francisco sitting half-empty to big-name landlords defaulting on urban retail space, it’s clear that the post-COVID correction in commercial property is real—and ongoing.

Naturally, clients have been asking: Should we be concerned about spillover into residential real estate?

The short answer is—not in the same way.

Different Drivers, Different Outcomes

The commercial market is being hit by a perfect storm of structural changes:

• Remote work has drastically reduced office demand - even with some companies shifting back to an "in-office" work policy

• E-commerce continues to shrink retail footprints

• Higher interest rates are hammering refinancing options on maturing commercial loans -- which could in fact be an opportunity for saavy operators 

• Institutional players (REITs, hedge funds, private equity) are now offloading underperforming assets

Residential, particularly in lifestyle markets like Vail and Beaver Creek, operates on very different fundamentals. Demand here is driven less by workforce proximity or foot traffic, and more by legacy planning, lifestyle enhancement, and long-term asset diversification.

In Some Cases, It’s Good News for Residential

Here’s where it gets interesting: some private capital is quietly shifting away from commercial assets and into residential real estate—not for income maximization, but for stability, appreciation, and utility.

In markets like Vail and Beaver Creek, investors have never chased real estate with a cashflow-oriented strategy. Instead, they’re allocating capital to tangible, lifestyle-rich properties that offer long-term upside and can be enjoyed along the way. The ability to generate some short-term rental income helps offset carrying costs, but the real play here is legacy ownership and asset diversification, not day-to-day yield.

As confidence in the commercial sector wavers, high-net-worth individuals are favoring residential properties they can use, pass down, or eventually resell in a supply-constrained market—a very different equation than managing downtown office vacancies or navigating tenant turnover in retail.

What It Means for You

If you’re a current owner in this valley, the distress in commercial real estate is unlikely to have any negative impact on your property's value. In fact, as more investors seek tangible, usable, inflation-resistant assets, well-located residential real estate is increasingly seen as a safe haven.

If you’re a buyer, this moment may offer a unique window—before broader capital rotation fully takes hold, and while rates are still projected to decrease in the coming months.

As always, I’m happy to discuss what’s happening nationally, how it connects (or doesn’t) to our local market, and whether now’s the time to make a strategic move.