The market uncertainty in the year 2022 has left a lot of people rethinking their investment strategies. Between numerous COVID-19 variants, unprecedented inflation, and soaring gas prices, on its face, the market looks frightening.
You may also be comparing the commercial real estate market to the residential market, which is bogged down by low inventory, bidding wars, and quick turnaround times. Though it is easy to assume that the commercial real estate market is enduring the same woes, it’s quite the opposite. Commercial real estate is ripe for the pickings and current predictions show that it is a more than ideal time to invest in a new property.
Let’s discuss the top four reasons why now is a good time to invest in commercial real estate:
Commercial real estate provides an alternative investment strategy to stocks and bonds
Commercial real estate investing is an alternative investment strategy to the traditional stock/bond portfolio, providing for mitigation against macro public market risks through yield from the underlying cash flow stream of tenant rents within real estate assets.
Investing in high-quality commercial real estate assets provides an inflation hedge as rents tend to rise along with inflation in well-located assets, with additional upside from property appreciation along with the recurring income yield.
Factory and warehouse space is coming into higher demand due to e-commerce.
E-commerce is the way of the future, taking over many brick-and-mortar stores that we know and love. As doors closed during the height of the pandemic and commercial real estate properties were increasingly put on the market, they are once again expected to reopen. However, not in the way that we are necessarily used to.
E-commerce shops still need in-person locations to create products, pack orders, and distribute them. As these new forms of shopping continue to increase, so will the boom of commercial real estate with it. Though brick-and-mortar stores may be replaced, these spaces are likely to be converted and used by e-commerce locations. Even full malls can have the capabilities to be repurposed for e-commerce fulfillment and distribution. (E-Commerce’s Effects on Warehouses, Retail, and Real Estate)
Nine months into 2022, overall vacancy in the Houston industrial market dropped to 5.8%, 170 basis points decrease from 7.5% last year.
Return to office trend continues to gain pace
With the COVID-19 pandemic sliding further and further down the top headlines, many companies are once again expecting their employees to return to a physical office space rather than continuing to work from home (Office demand comes roaring back as stocks in the space play catch-up). Even though many employers are in favor of allowing their employees to maintain a new hybrid work schedule, the requirement of having some face-to-face days in the office still requires companies to maintain a welcoming environment for their employees and clients.
A return to office continues gaining strength, with a notable increase in office occupancy across the country since Labor Day based on Kastle Systems access card data, there may be ripe opportunities to invest in high-demand office commercial real estate assets.
Commercial real estate is stable for rental properties
We all know that many stores, companies, and even government organizations choose to maintain leases rather than purchase their retail or commercial spaces. This makes the income potential for commercial real estate spaces especially attractive to those who wish to invest in real estate to generate an additional income stream.
Commercial properties generally have an annual return on their purchase price that is between 6-12%, according to Bank of America. This figure is much higher than what you would be making from residential property investment. These leases are also lengthy and more stable, such as a triple net lease which can make you income while the tenant assumes most of the operating expense risk on the property. These commercial leases are a way to generate low-risk, steady income from investing in commercial real estate (Triple Net Lease (NNN).
So, are you ready to invest in commercial real estate?
Consider reaching out to a Belvoir investment strategist and commercial real estate broker to discuss your interest in the current commercial market. At the core of everything we do is provide valuable insight into what you need to know during this very important decision.
Collaborating with an expert in the field will help set up your investment for success and allow you to strategically purchase your own retail or office space, or become a commercial landlord an investment strategist, and a commercial real estate broker. Any way you slice it, you are sure to see the benefits of investing in commercial real estate when considering these top four ways why now is a good time to invest.