The real estate industry has faced a variety of challenges over the past year. Residential properties have been impacted in unforeseen ways, including changes to how homes are marketed and sold.
But what about commercial real estate?
Commercial property, perhaps even more than residential, has shifted, changed, readjusted, and shifted again. Because commercial property is so dependent on economic details, you could easily argue that this sector has been impacted more than residential.
As an investor, is now a good time to enter commercial real estate? Is it wise to wait? Like all investment strategies, a knowledgable, patient, informed approach will increase your chances of the best possible results.
Should Investors Consider Commercial Real Estate?
To make a decision on whether or not now is a good time for commercial real estate (this article was written in December of 2020), you should first step back and take an overall look at the current status of the market…
Current Market Conditions for Commercial Real Estate
Here are some of the trends you should understand before making a purchase decision…
Space for “Essential” Businesses is in High Demand
It’s hard to tell someone that their business is non-essential; to the worker or business owner, every business is essential. However, commercial space that houses certain businesses that have been deemed “essential” are in high demand, and owners of these spaces should have no problem finding tenants.
Money is currently flowing toward spaces that house businesses like grocery stores, dollar stores, automotive shops, pharmacies, and medical centers. Any property that currently houses, or could be renovated to house, these businesses will likely be a wise investment.
Industrial and Manufacturing Properties Increasing
Arguably part of the “essential” businesses, industrial and manufacturing facilities could easily be a wonderful asset moving forward. The economy has seen a surge in e-commerce transactions, a trend that was growing rapidly but rocketed with the pandemic. Every conceivable product has been shipped from industrial centers to someone’s home, and this trend may cool but it certainly won’t disappear. From warehouses to distribution centers, industrial space is going to maintain a high demand.
The pandemic has also created a refreshed demand for U.S.-made goods, especially for items that are connected to healthcare, such as masks and sanitizer. Because there is a newly-heightened concern for speed and ease of bringing these products to the market, there has also been an increase in U.S. manufacturing. Investors who find affordable manufacturing space near populated centers stand to earn a strong return from their investment.
“IoT” Technology Becoming a Crucial Factor
The preferences among tenants is changing, and with increases in remote work and distant communications, the “Internet of Things” or “IoT,” is going to be in high demand. Commercial-property owners who can offer connected features, such as cloud-connected security, will have a better chance at attracting high-quality tenants.
As an investor, you don’t necessarily have to install IoT devices, but commercial real estate with the potential for these features will be useful. Consider properties in areas that have easy access to high-quality internet service and you’ll be more likely to attract a variety of commercial tenants.
Medical Retail Space Remains Important
One of the main goals for numerous lockdowns across the country was to reduce the burden on hospitals. This goal can also be achieved with more medical retail space. Moving services out of the hospital is beneficial for the patient and the healthcare industry, and it can also be good for investors who have a stake in medical retail properties.
Owning medical space has a variety of advantages. For one, the medical field is essentially recession proof. Economic conditions may drive down sectors like restaurants, hospitality, or manufacturing, but medical services will always be needed. This brings enhanced stability for owners. The tenants in these properties are often backed by large corporations with deep pockets, so the chances of missed payments is reduced. They also come with long-term leases, bringing even greater stability to your portfolio.
Office Space on the Decline
There are, of course, sectors of the economy that will decline, including office space. More white-collar businesses are going remote, with employees completing their business from home. This means that office space, a traditional staple of commercial real estate, will likely continue to decline.
A large part of the American workforce could become a sort of hybrid between in-home and in-the-office workers. Employees may go from five days in the office to two or three, which means employers don’t need as much space as was previously required. Although it will likely recover, office space, at this point, seems like a shaky investment. (However, you may be able to find great deals as owners try to offload office space from their portfolios.)
Retail Uncertain As Well
Of all the major factors involved in changes throughout commercial real estate, uncertainty behind retail is possibly the biggest. The ability for retailers to operate during the COVID-19 scare has created massive shifts in how this space is used, and it could be a long time before traditional retail areas, like shopping malls, ever return. Clothing retailers, hair salons, strip malls, and many other in-person businesses are now at peril for stop-and-go shutdowns, creating massive uncertainty for these areas.
With a Sound Strategy, Commercial Real Estate Can Bring Excellent Returns
Commercial real estate can be one of the best investments possible. But, perhaps more than any other investment, it requires a wise plan based on knowledge, research, and information. By taking your time, researching the current market conditions, and studying forecasts, you can select the right properties for your portfolio. Nothing is guaranteed, but with a strategic approach, commercial real estate might be perfect for your future.
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If you are ready to enhance your future with commercial real estate, contact our staff today. We’ll help you find an affordable loan so you can purchase a commercial property that diversifies and improves your investment portfolio.
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