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Factors to consider when investing in commercial real estate

Factors to consider when investing in commercial real estate

Factors to consider when investing in commercial real estate

Commercial real estate can be a good investment for individuals looking to diversify their portfolio. If you are considering investing in commercial real estate how do you know what to look for or where?  There are many factors to consider. Before purchasing a property, here are a few areas to research for an optimal return on commercial real estate investment:

 

  • Low unemployment rates

Cities with lower or decreasing unemployment rates are good indicators of a robust job market. Due to COVID-19, we have seen changes within certain industry sectors impacted and some markets temporarily affected more than others, which can be a determining factor for when the right time is to invest in commercial real estate. A robust job market is one key indicator for probable demand for office and retail spaces.

Read more here about the lowest unemployment rates by state within the United States, as of November 2020.

 

  • Low purchase price, high rental cost

While it may seem obvious, finding a property at or below market value or one that will demand premium rental income is an important consideration for investing inj7un commercial real estate. The goal is to invest in property that will cash flow or generate revenues via rent and/or at resale.  Seeking properties that are slightly distressed or in an up-and-coming area may offer opportunity.  A commercial property that is pending foreclosure, may also offer a good investment opportunity. Before investing in commercial real estate, it is beneficial to research on comparable markets and learn what the average rent is for similar properties.

 

  • Consider business trend and demand for commercial real estate

COVID-19 taught us a variety of unexpected lessons. Regarding the commercial real estate industry, we learned firsthand how a pandemic can impact the market and specific industries. For example, business in hospitality, restaurants, retail, and office space all experienced a decrease in immediate demand. As some restaurants and retailers were forced to shut their doors permanently, and leases were renegotiated – others continued to operate and even opened new locations. The variations depended on multiple factors including location, how quickly the business was able to pivot, their financial situation pre-pandemic and how much flexibility they had in restructuring expenses or renegotiating leases. If you are considering investing in commercial real estate, another consideration must be business trends and projections for the given market and industry.

Read more about the 2021 Commercial Real Estate Outlook from a global, national, and local perspective here.

 

  • Consider area demographics and trends

When investing in commercial real estate, it is important for an investor to also consider area demographics and trends carefully. For example, in Arizona, many Fortune 500 companies are moving to the desert due to its low cost of living, high standard, flourishing talent pool of talent, and lower costs for business. In addition, relatively low costs for land, warehouse space and the lack of natural disasters, make Arizona an appealing location for companies in the logistics and supply chain management sector.

 

  • New developments in the making

While it may be hard to foresee where the next boom in commercial real estate may be, a helpful hint is to look at up and coming markets where new jobs, residential complexes, and commercial real estate companies developing new projects.

Eight cities in metro Phoenix made AdvisorSmith’s national list of cities with the highest rent increases. If you are looking to invest in commercial real estate, experts   at Landmark Title are available to provide escrow and title services. Contact us today for more information.

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