Commercial real estate always has opportunities for long-term gains if approached strategically. This is true even when the economic climate is unclear or even headed into a downturn. In times of economic uncertainty, consider these strategies for sound commercial real estate investing:
- Location, Location, Location. The old adage of real estate applies no less now than it has in the past. Beyond a specific intersection or neighborhood, consider the broader community and economy in which the commercial real estate sits. Some markets are more resilient than others, so understanding the context is important. Consider whether the overall area has a diversified economy, low unemployment, and population growth that would support tenants in a downturn.
- Class Strategy. Some types of commercial properties perform better in downturns. Think about uses that are essential – things consumers buy every day or services that are needed regardless of economic conditions. These safe bets aren’t the only opportunities, though. Even asset classes like office buildings that have struggled in recent years may have opportunity.
- Go with the (Cash) Flow. In uncertain times, steady income is king. Properties with long-term leases in place or in stable markets with low vacancy rates will generate cash flow to have in reserve or pay down high-interest debt. Conversely, commercial real estate with short-term leases may provide opportunities to improve rental rates. Generating cash on hand can also be a key reason that owner-occupants choose to sell. This can create opportunities to get high-quality tenants and have fully occupied commercial real estate.
- Adding Value. In markets experiencing an economic reset, consider starting improvement projects at your commercial property. Adding amenities or improving the property condition can set your commercial real estate up to be in a prime position as economic conditions improve. In addition, contractors may be more willing to adjust pricing or commit to faster timelines as other projects get put on the shelf.
- Bargain Shopping. Many markets learned from the Great Recession and opportunities for acquiring commercial real estate at a discount may be more limited. However, those opportunities will undoubtedly still exist. Watch for signals that a property owner may need to divest commercial real estate that is distressed or struggling with cash flow.
- Be Thorough. Due diligence is a fundamental step in acquiring commercial real estate and is even more essential with economic uncertainty. Carefully review leases and tenant creditworthiness, evaluate scenarios like higher vacancy or more conservative rent increases, and consider keeping more cash in reserve.
With careful analysis and planning, investing in commercial real estate can still be rewarding even when the larger economic picture is unclear. Please give us a call or contact us online to schedule a free consultation with one of our agents today to learn more about how we can help you be successful with commercial real estate.
