One of the many changes in the commercial real estate market over the last two decades is the increasing ease of entering the market. Many investors in the past considered commercial real estate as an option only for investors with large portfolios and all the right connections. Today, thanks to the ability to use online platforms and services, smaller investors or those new to investing are entering the commercial real estate market and making a significant impact. Understanding the market is always critical. Working with a commercial real estate agent throughout the process is the best way to gain experience and avoid potential new investor mistakes. Let’s take a closer look at why commercial real estate (CRE) is an attractive option for small investors in 2021.
Increased Profits and Faster ROI
Most people have considered buying real estate as a form of passive income to add to their portfolio. Buying a residential property is an option, but it has a limited ability to earn income as a single-family dwelling. On the other hand, CRE can be upgraded, divided, and leveraged to increase profits and provide a better ROI. Businesses are more competitive for prime real estate locations, allowing building owners to increase rental income as the market allows.
Increased Vacancies in Office and Retail Space
Lockdowns, work-from-home, and restructuring for many companies and retailers increased the vacancy rates in all cities. Class A office space, which is the most prestigious of the options, has seen a decrease in tenancy, particularly with smaller corporation leases. This provides opportunities for investors to buy into these upscale buildings. However, it will be important to have the funds to weather the storm until companies make the choice to move back to physical office space or to adjust their structure from the current remote work situation. Keep in mind, Class A office space will always be in demand due to the location, building amenities, and the expectations for a corporate office to have a physical location.
Increase in Value Over Time
Unlike residential property investment that often has a revolving door when it comes to tenants, CRE is relatively stable, particularly with office and retail space in newer buildings. While there is some cost to consider in keeping these buildings fully upgraded and in like-new condition, the offsetting increase in value of the property makes this a valuable addition to any investment portfolio. It is also important to note that most leases for CRE are three to five years or more in duration. This stability and the investment the tenant have in maintaining the location is also a benefit to consider over residential property management challenges. While there is some volatility in the CRE market, it is not as reactive as the residential real estate market. This stability adds to the value of this type of investment as a long-term addition to your portfolio.
