Trends in Commercial Real Estate

I give a fair bit of advice in this blog about managing small multi-units residential properties, but I don’t want people thinking this is solely what I do. I practice what I preach and I keep my business diverse by selling residential, commercial, multi-unit, leasing, and development property.

 

I want to focus on commercial real estate in this post. Broadly speaking, there are about five different kinds of commercial real estate: Land, multi-residential, retail, office, and industrial. I placed them in this order intentionally because they are interrelated whether we notice it or not.

 

Allow me to break this down:

 

Land- I start on land because it comes first. Everything is built on it.  If you haven’t considered purchasing commercial land before, it may be something you should seriously think about buying either on your own or as a joint venture.  Land is getting tighter to come across, especially around big cities, so snatching up a parcel or two now could lead to a nice appreciation price in the future.  Buying right is the key, do your homework.  Review your city or town's growth plans and try to buy in front of that growth.  It is more difficult to get passive income from this asset class but there are less expenses or tenant issues to deal with.  If you are looking at buying farmland on in outlying areas you may be able to rent the land to a cash crop farmer to recoup some or all of the tax expense for the property.   Ways to add value for this property type are, rezoning, plan of subdivision or severance, or just time.  

 

Multi-Residential- You are the Captain Ahab of investors, and multi-residential is your white whale. I say this because the have are scarcely found and the owners are generally unwilling to give them up because they are such great performers. They do well because they house many tenants as opposed to just a few, which is risk protection for you, and they appreciate in value. It isn’t often when you see a golden goose for sale, but when you do, you should carefully consider it. (Pssst… I do know of a willing seller, but I don’t have a listing agreement yet. Call me if you are curious about the apartment building that is willing to be parted with).

 

Retail- Retail can be a great performer and there is plenty of it. Plazas, shopping centres and strip malls are what fall under this category. If you want a really great retail performer some things to watch for are retail buildings with leases that are either up for renewal or expiry, or that have strong rental escalations built in to a longer lease. Location is always an important part of real estate, and more so with retail. That is not to say that all retail locations off the beaten path or main drags of cities aren’t great performers either. There are many tenants to consider that are “destination retailers” or retailers that do not depend on foot traffic to do well. Things like travel agencies, training locations (dance school, karate schools, etc.),  niche market retailers (sporting goods, camera equipment, electronic, etc.) are good examples of retailers that are destination suited and would do well in a variety of locations.

 

Office- Often an underestimated asset, especially to small and medium scale investors. If you play your cards right, the opportunities you should be looking for are in renovating old properties and in lease renewals. Also, there is a movement toward retail in the ground level units for a more diverse source of income.

 

Industrial- These types of units can make some interesting returns. They often have the best returns, and are some of the most versatile. What is nice about industrial property is that tenants will typically be more responsible than the landlord for the property. To make leasing more easy older, larger industrial buildings can be chopped up into smaller units and high rental rates. These may be the new popular go-to investment. With e-commerce on the rise, so to does the need for satellite warehouses and distribution centres to reach further than ever before. The demand for such properties will likely continue increasing for some time.

 

The needs of each of these types of properties is always changing and fluctuating. We live in a pretty interesting point in human history since the technology we use can change at the speeds that it does now. It’s incredible to think that introducing something like e-commerce could increase the need for industrial buildings, a large population of retiring seniors downsizing their homes means an increase in storage facilities, or mortgage interest hikes contributing to a greater need for rental properties. Keep your eyes peeled for the next big movement. If you are creative enough to foresee how it will affect the real estate market, you may find yourself in a very good place financially.

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