With the recent change in administration, the recent rise in interest rates and post-recession property process, one cannot help himself but wonder: is it really a good time invest in commercial real estate in this country?
Well, let’s put it like this: there’s a good reason why Chinese investors have invested more than $21 billion on commercial real estate across the world in the past few years. And just for the record, almost $6 billion of that money was invested in US real estate properties.
As you can see, when done right, renting out commercial properties can bring in more returns than many other investments on the market. But if you’re still not completely convinced, here we have a couple of reasons why you should invest in commercial property in the near future.
Four Main Reasons Why CRE Investing Pays
1. The Recent Job Growth
In the last couple of years, the continual job growth has led to rising rents and low vacancy rates. And this has created a large demand within the CRE market. Naturally this will create an even bigger demand for more apartments and office space for younger employees to live and work. A recent Bureau of labor Statistics report, which revealed that overall employment is still trending upwards only verifies this statement.
2. Office Rents are rising
New office development has definitely had an overall positive impact on leasing rates across the country. If you take a look at Jones Lang LaSalle’s 2016 Q3 report, rent for offices has risen by 1.0% over the third quarter last year and reached a cycle high. And more importantly, according to Origin Investment, this growth has been led by secondary US markets like Denver.
3. Sales are Looking Good
In the first six months of 2016, total CRE sales in the US have reached almost $140 billion, according to principal-led commercial real estate in North America, Avison Young. While in the past, the office sector performed inconsistently, last year, it finally stabilized and actually led the sales. And even though large markets like Los Angles and New York experience the highest volume of sales, the aforementioned secondary markets saw the most growth during the period.
4. You Still Have Lots of Opportunities
If you’re not aware, in the past few years, urban residences and all convinces they have to offer have risen in popularity drastically – especially if we’re talking about millennial residents. While some people think this will hurt the suburban market, it actually gives a great opportunity for housing development outside of large cities, which will be able to provide amenities usually found only in urban settings.
Bonus: Do Your Homework before Investing
Finally, it’s important to note that owning commercial property is still risky, so you cannot assume that just owning an expensive commercial property will unquestionably bring you a high return on your investment.
A good investor always seeks out the best advice and gathers all the right information he can before choosing the right building. You have to be aware of both advantages and disadvantages of owning commercial properties.
It all depends on the building of course. For instance, according to professor David Reiss from the Brooklyn Law School, if you’re purchasing an old building that needs major improvement, you’re certainly taking a big risk with your money.
So before investing any money, you need to do as much research on commercial real estate as possible. Once you select a property, investigate it and determine that it’s a smart purchase, you should invest your money and add a nice property to your investment portfolio.
So as you can clearly see, it’s not too late to invest in commercial real estate in America. Commercial is still an asset-class that can give you long-term returns and allow you to build substantial wealth in the long run.
However, you have to be as informed as possible, so make sure to take a strategic approach to your investments, and you’ll eventually realize rather impressive returns in both mature and growing markets across the country.