While elements of the pandemic linger, 2022 has proven to be a year of economic recovery with demand for industrial properties increasing. While some previously popular sectors of commercial real estate are experiencing challenges, others have resurfaced, offering promising investment opportunities. This is especially true in the Southwest, where properties in the commercial sectors are projected to be a strong investment.
Interestingly, the Southwest makes up a significant number of the top states in commercial real estate investment. This is because many of the Southwest states have high growth rates in career opportunities and income along with lower tax rates and less expensive facilities. The combination of factors offers an environment where investors have the opportunity to grow their portfolios, while gaining a strong potential return on commercial real estate, whether it is a buy and lease or buy to sell at a later date.
Among the Southwest states, commercial real estate performance is especially strong in Arizona, Colorado, Nevada, and Utah.
A look at Arizona
Several factors make Arizona an ideal place to invest in commercial real estate. The state maintains strong market fundamentals and features, and its capital, Phoenix, is one of the most sought-after cities in the country for both business and residential. Additionally, the state holds a significant seven percent population growth rate. In terms of profitability, the average property tax rate is less than one percent, and other typical business expenses, like labor and insurance, are also lower in Arizona than other comparable states.
Colorado climate for commercial real estate
When considering where to invest in commercial real estate, return on investment is a key factor for consideration. Colorado is regarded as one of the most profitable states for commercial investments due to its consistently high appreciation rates.
Nevada commercial market continues to grow
Both commercial real estate experts and new investors can agree on Nevada being a smart choice. Nevada holds one of the highest property appreciation rates at sixteen percent over five years. The increase in property values combined with a healthy population growth are key factors in making Nevada an appealing choice for a commercial investment portfolio.
Strong Utah growth
The state of Utah also holds impressive rates of population and job growth. According to the 2020 Census, Utah experienced a population boom of 17. 6% from 2010 to 2020. Utah is on the top 10 list of states for commercial real estate investment, showing consistent profitable returns.
Commercial real estate properties
There are significant amounts of capital available among business investors that are entering the commercial real estate sector in the Southwest. Here is a breakdown on the types of commercial properties that are the most lucrative for investment:
In retail, strip malls located in densely populated residential areas continue to provide a good return on investment. In an ever-evolving retail sector, it is important for property owners to offer access to in-person local services and to consider non-traditional retail categories, like medical providers that are looking for smaller locations to set-up neighborhood urgent-care facilities and other health care facilities. While Class B and C malls were hit hard by the pandemic and continue to struggle, these properties present opportunities for reuse or adaptation.
Multifamily housing remains one of the strongest commercial real estate investments. As the single-family housing market sees rises in prices and mortgage rates are also rising, more people are looking for places to rent and they are renting for longer periods of time. In fact, renting is so popular that the multifamily vacancy rate for the first quarter of 2022 was only 4.7 percent, pushing asking and effective rents to near-record highs. In addition, demand for housing is still greater than supply. Affordable housing will always be a need; the shortage of housing is increasing rental rates and property values, making this sector an appealing investment. This is especially true in the Southwest, where the aforementioned benefits of a lower cost of living and strong job growth make multifamily properties profitable investments.
During the pandemic, office jobs pivoted into the new-normal work from home lifestyle. Office buildings sat unused and largely empty for months. Today, as companies bring people back into the office, the needs for space have changed. Many companies are now embracing a hybrid environment, which appears to be here to stay. Even with the hybrid model, on-site workspace is necessary for many operations. However, it is prompting organizations to rethink how they use office space. The labor shortage requires innovation and amenities to appeal to new talent. These amenities can include outdoor spaces, more private offices, onsite daycare, and more conference rooms equipped for online multi-location meetings.
Industrial facilities in the Southwest are in high demand. Growth shows no sign of slowing down as e-commerce and delivery services become a way of life. The addition of local manufacturing operations to help overcome supply chain issues and companies setting up U.S. operations are all contributing to the growth in the industrial sector.
There are always levels of uncertainty but given the business and residential projections of growth in the Southwest, commercial real estate investment is a relatively safe investment. Like all real estate purchases – location is a key factor. With multiple sectors in the commercial real estate sector showing growth the Southwest is projected to continue to attract new investors to the area.
If you are looking to purchase commercial real estate in Arizona or Nevada, Landmark Title Assurance Agency can help. Our team of experienced commercial team in title and escrow is well versed in highly complex transactions and understands what is needed to successfully close. Contact us to learn more about our services and expertise.