If there’s one thing we’ve learned about both the economy and commercial real estate markets, it’s that their cycles come and go. Because we’ve seen this happen time and time again, we now ideally want to anticipate where the current cycle is headed, rather than not foresee what’s coming our way.
While economists, generally speaking, aren’t telling us that bad times are coming, it’s still a good idea to look at the map, recognize where we’re at in the cycle right now, and then determine what this now means for our best course of action.
In addition, one appropriate question to be asking ourselves right now is, “How much longer will my property continue appreciating before the next economic downturn?”
If you’re someone who plans on holding onto your commercial real estate through the next economic downturn, and then coming out the other side successfully once again, determining whether or not now may be the time to sell may not be that relevant to you. But if you’re someone thinking that you’d like to cash out of one or more of your properties before the next do
wnturn hits, then this could be a very important discussion to be having.
While in recent years real estate markets have been improving, and prices per square foot have been going up while cap rates have been going down, the rate at which this has been going on, generally speaking, has been slowing. In addition, in some cases it looks like we may have hit the limit with property appreciation. With this in mind ask yourself, “Does it feel like we’re near the top of where the values will be this time around in this up cycle? Or does it feel like there’s substantial momentum that will still push property values even higher?”
If it seems like there’s been a flattening or a topping-out in the appreciation level of your property, it could be the time to sell if your plan is to get out before the next economic downturn hits us. If you genuinely feel that this is about as high of a price as
you’re going to see for your property this time around, and in knowing that good financing is still available, this could be a great time to sell. But once interest rates continue going up and good financing becomes tougher to get, this will then become an
entirely different story. When good financing becomes tougher to get, and monthly loan payments become higher because of the new, higher interest rates, buyers will then demand to pay less money for properties than they’re willing to pay right now.
We’ve had years of recovery now in the commercial real estate market, and in knowing that markets come and go within their cycles, we’re more likely to see a downturn in values as the next major market move, than we are to see a significant, continued rise in property values. We could still see values hovering for awhile, or even increasing a little bit more, but in terms of property values making a major move, we’re more likely to see it be a downward major move, than an upward one. This is simply because we’ve been in an up cycle for some time now, and we know from experience that this up cycle just can’t last forever.
Hopefully any major move like this will still be somewhere down the road, but if you’d like to discuss your own specific property, and whether or not this may be the right time to sell, give me a call.