Whether you’ve been sitting on the sidelines or have invested in commercial real estate for decades, there are a number of reasons why investing in office and industrial properties makes sense right now. For savvy investors who are poised and ready to take advantage of the market, there are a wealth of upsides to commercial real estate. Let’s look at just a few:
#1. Attractive Returns
Perhaps one of the main reasons why both private and institutional investors are considering investment in commercial real estate right now is the attractive returns these investments offer. When compared to stocks, bonds, or other commodities, commercial real estate does well.
The National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index is a great benchmark, which measures a pool of commercial real estate properties on an unleveraged basis. For reference, the Index reported an annual return of 12.7% in 2015 and an average annual return of 8.8% over the last 15 years.
#2. Cash Flow
Whether you’re investing in office, retail, industrial, or multi-family, most investors structure their real estate investments to provide them with ongoing cash flow on a consistent basis via rental income. In the office sector, for example, U.S. employers are leasing office space at the fastest pace since the recession. Vacancy rates are down to 16.3%, and rents sought by landlords hit $30.86 per square foot —up from $29.94 a year earlier.
#3. Equity via Leverage
Another great reason to invest in commercial real estate is the ability to place debt on the asset which is several times the original equity. This allows investors to purchase more assets with less so they can significantly magnify their equity as loans are paid down.
#4. Hedge Against Inflation
A study by TIAA-CREF indicates that commercial real estate has the highest correlation to inflation when compared to other asset classes. Generally speaking, when inflation occurs, the value of real estate —particularly commercial real estate, as described— will also rise. As such, commercial real estate investment is a particularly strong way to hedge against inflation.
#5. Emerging Trends
There are several emerging trends happening in the commercial real estate space that also indicate it’s a good time to invest in office and industrial real estate. Below are just a few:
● Increased E-Commerce Activity is spurring demand for warehouse, production facilities and others needed to support distribution and shipping.
● Newfound strength in the office sector is being caused by increased demand, as U.S. employers are leasing space at an unprecedented pace.
● Global and political uncertainty continues to drive increased interest in U.S. commercial real estate by foreign investors, which is increasing values in certain markets.
For more trend spotting, be sure to read the top 3 Industrial Sector Trends to Watch in 2017.