Every investor with a significant amount of capital wants to make money and amass riches over time. The cash flow, price appreciation, and tax benefits commercial real estate offers can help investors accomplish these objectives. Given rising property prices, interest rates, and the variety of available options, it can be difficult to choose how best to invest in this asset class.
So, the question naturally arises: Is now still a time to purchase?
The fundamentals of the commercial real estate sector indicate further success in 2017. The National Real Estate Investor magazine predicts that “high net worth investors plan to keep buying (commercial) real estate assets in 2017.” It is supported by results from the 2017 CBRE Americas Investor Intentions Survey.
Sixty-nine percent of its HNW respondents plan to boost spending this year.
Nevertheless, investing in commercial property can be challenging and hazardous for several reasons.
Incorrect actions regarding real estate can result in substantial financial loss. Larger properties necessitate more time and money for upkeep and repairs. When you put a lot of money into anything all at once, it becomes more difficult to recover from setbacks like unplanned maintenance, low occupancy rates, or failing to comply with arcane regulations.
High-net-worth individuals face competition from institutional investors, who often have easier access to transactions, financing, and support teams, making it more challenging for them to acquire properties.
Investing in a fund of private equity real estate, which pools investor resources to buy and sell many properties, can help reduce costs and distribute risk, as was recently discussed on the Huffington Post. Funds relieve investors of the burden of property management while reducing their risk exposure through a spread of holdings across multiple markets.
Better properties are also available to investors through private equity real estate funds. As experienced real estate managers with three funds under our collective arm, for instance, we annually evaluate hundreds of potential commercial real estate purchases before selecting assets that we feel to have the most potential.
In addition, we have locals on staff in key areas to monitor the development of real estate trends as they unfold. What we find most interesting about current market developments is:
An Upswing in the Suburbs
Suburban office markets in North America are expected to see rising rents through 2018, according to CBRE Econometric Advisors. Owners of efficient suburban buildings with high-quality amenities, especially in light of the emigration of young employees to the suburbs, will benefit from continued demand and a lack of new supply. Lachman Associates, a consulting firm, reports that only 13% of millennials currently reside in downtown areas, and only 35% consider themselves urban.
Loft Workspaces
The rents for renovated brick and timber structures with open ceilings are on par with those of modern office complexes. Companies employ these innovative workplaces to entice and maintain a highly educated workforce.
Little Apartments
Downtown apartments have shrunk from a thousand square feet to 400 square feet or less in size. It increases the number of units on a property, making the best sites more accessible to renters and potentially raising the landlord’s income.
The “Death” Of Big Box Retailers
Nearly 3,000 stores have closed or are slated to close in the United States. These businesses include hhgregg, Macy’s, Sears/Kmart, JCPenney, and Payless. ShoeSource. These structures will likely undergo repurposing as places of healthcare, residence, business, and possibly manufacturing.
Although we anticipate these tendencies to persist, the U.S. commercial real estate market is surprisingly varied. The Urban Land Institute identified numerous industries that offer “better risk-adjusted returns and a potential to deliver a superior degree of management” in its 2017 Emerging Trends in Real Estate study.
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