
From owning pieces of land to pursuing massive mergers and impacting an entire community, Commercial Real Estate’s ever-changing nature is a rather fascinating phenomenon in the current market.
Before we get into other facts about the Commercial Real Estate Industry, there’s one truth you must know: Commercial Real Estate is a cut-throat and highly competitive market. When you invest in a property, it has the potential to go either one of two ways: a gold mine or a money pit. The deciding factor behind this is the amount of knowledge you possess about the industry.
With landlords, buyers, and sellers often pushing for the most efficient prices and values, you need to be prepared for what the Commercial Real Estate Industry entails.
So, let’s dive into some important facts about the Commercial Real Estate Industry you should know.
Fact 1: Not All Commercial Property Types Are the Same
Once you’re ready to take the leap to Commercial Real Estate investing, think outside the box. Commercial Real Estate primarily consists of three different classes of properties – retail, industrial, and office.
Retail options include properties, such as stores, restaurants, and retail establishments; industrial options include factories, warehouses, vacant land, and industrial parks; and office options include commercial office buildings. Other unique commercial property assets include self-storage, medical, elder care, land, or hotel. What’s interesting is that although all these properties fall within the same industry, their demand, supply, yield, and overall profitability vary greatly.
If you’re a novice investor looking to make your way in the world of Commercial Real Estate, the best way to go about it is to know how to identify the most profitable asset types or ones that offer the most significant opportunity in the current economy. Learning more about these options from a Commercial Real Estate Agent can help give you a clearer picture of which one of these properties holds the key to your investment success.
Fact 2: Many Different Factors Drive Commercial Real Estate Prices
Several different factors may impact the prices of Commercial Real Estate Properties. First off, demand and supply are the greatest drivers of property prices. For instance, if an area has more Commercial Real Estate Properties than businesses or investors are willing to take on, their prices tend to drop. On the flip side, if more people are trying to start a business in a specific neighborhood with limited available commercial properties, the prices are likely to climb.
Besides demand and supply, the current economic situation also plays a significant role in comprehending the intricacies of Commercial Real Estate as a whole. For instance, as the growth of online retailers throughout the U.S. continues to surge, a growing number of virtual entrepreneurs are in search of warehouse spaces. Although the increase in online sales has reduced the demand for retail spaces, the demand for warehouse spaces continues to grow.
If we were to take a deeper dive into Commercial Real Estate prices, we’d learn that the property size and location are also crucial cost determinants. Whether it is a retail establishment or a warehouse, the ideal way to get the best rate for a Commercial Real Estate property is to work closely with someone who understands the local market well.
Fact 3: The Job Market Also Impacts the Commercial Real Estate Market
If you’re familiar with economics, you’d probably know that the job market and commercial property prices are linked with each other. In case you don’t, here’s where the association between the two exists: an increase in the number of non-flexible jobs, such as banking or law-related jobs, increases the demand for commercial spaces, causing an upheaval in the Commercial Real Estate Market.
Since the job market relies largely on the general state of the economy, so does the Commercial Real Estate Industry. For instance, the current economic situation determines how well a business can perform. So, if a business is doing well, it can level things up through expansion, leading to more job creation and the demand for a larger commercial space. On the other hand, businesses operating poorly due to economic conditions will consider downsizing their operations.
Fact 4: Commercial Real Estate Has Many Options
There are three different categories in which Commercial Real Estate Properties can be classified: Class A, Class B, and Class C.
Class A
As the title suggests, Class A buildings are the newest and highest quality properties built in the best locations. These properties get investors exceptional rental income as they usually become home to multinationals, Fortune 500 companies, or prestigious law firms.
Class B
Class B properties aren’t as excellent as the Class A ones, but they still have some great qualities. Class B properties are quite well-located and have the potential to be transformed into a Class A building. As an investor, if you manage to find a class B building in a great neighborhood, think of it as a gold mine.
Class C
Class C buildings are the lowest-ranking commercial properties that were built decades ago and require extensive renovations to be somewhat presentable.
Fact 5: Commercial Real Estate is a Good Investment
Let’s start this fact off by saying that as of 2022, the Commercial Real Estate Market in the U.S. is $1.1 trillion, averaging a growth of 4%. These stats should provide you with more than a clear picture of the kind of potential this market holds.
Commercial properties provide the opportunity for a stable cash flow. Investing in a commercial building that you can rent to other businesses is a great business idea that can get you an adequate regular monthly income that’s not dependent on the success of others.
Wrapping Up
If you’re a businessperson, you’re already a risk-taker. So when it comes to purchasing a commercial property, you should be prepared for the deal going either way. Moreover, purchasing a commercial property can be even tougher for first-time investors. However, the only way to go about this and set yourself on the road to success is by increasing your awareness about the industry that the facts listed above can help you do.
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