Think of commercial real estate as a giant industry that evolves rapidly through the expansion of other businesses. Commercial offices located in the skyscrapers of major cities and behemoth E-commerce stores located in suburban industrial parks both face an ever-increasing need for space to host their expansions. All of this screams for one thing: investments in commercial real estate!
But, for investments to become profitable and for you to achieve marginal utility, you must look into the current state of the commercial real estate market before moving forward. Thus, as an investor, there are several ongoing factors you should focus on to obtain the best outcomes for your investment portfolio.
Some of these important factors include the following:
Thanks to global warming, our climate and surface temperatures are changing drastically. Sea levels in the Gulf and North Atlantic Oceans are rising as we continue to dump tons of carbon dioxide into our atmosphere.
This might not seem to be a problem for many commercial real estate investors but, if not prepared for appropriately, could very well ruin their projected returns. Recent flooding and hurricane activity in the Gulf of Mexico and the Atlantic Ocean has impacted the states of Texas and Louisiana considerably. As a result, this has ultimately limited commercial real estate investments in the region.
After all, who would want to invest in and purchase offices and retail shops in an area prone to flooding? With a bit of creative preparation, however, investors who are interested in commercial real estate in the region can take steps towards the building and maintenance of existing commercial building frameworks to avoid the detrimental effects of climate change. This potentially includes the construction of fences and minimum elevation heights to counter any hazardous situations that may occur during times of disaster.
Influence of E-commerce
E-commerce is heavily influencing conventional shopping methods. Just the growth in the number of digital E-commerce sites shows the impact it is having in various industries. Correspondingly, retail and online E-commerce giants are expanding their storage and warehouse capacities as the demand for online shopping continues to skyrocket.
This brings increased opportunities for commercial real estate investors in an interesting way. In years to come, if the growth of E-commerce continues at its current pace, investing in local and large scale warehouses may potentially yield significant returns. This is because retail giants, such as Amazon and Wal-Mart, require large-scale facilities and storage services to house their goods. Should you possess such an infrastructure in your commercial investment portfolio, you may just be able to capitalize on the rapid growth of online shopping.
The odds between the Democratic and Republican parties is brewing across the United States. With trade wars and jobs cuts cropping up in the center of our political scenario, it is justifiable to say that these events affect the commercial real estate industry directly.
The past year alone has resulted in increased uncertainties regarding immigration, trade policies, and tax reforms. These, in turn, have threatened countless local and foreign property investments as investors await a more stable atmosphere to capitalize on their returns with more confidence.
The underinvestment in infrastructure and its maintenance is elevating the risk of short and long-term economic drag. Despite efforts, there haven’t been any serious attempts to uplift national infrastructure and its maintenance in the bustling downtown areas of emerging cities.
Among other impacts, this creates congestion and burdens the current resources of local businesses — forcing many business owners to drop their current office locations only to relocate somewhere that is more reasonable.
The Long Awaited Downturn
After recovering from the recession of 2008, commercial real estate has seen unprecedented growth — leading to many profitable outcomes. This is great news for many realtors and investors but the prolonged growth may also be a foreshadowing of another economic downturn. Unprecedented growth in any sector can lead to disastrous results in the future, such as a severe correction in prices.
This is one of the main reasons why we witness both growths and recessions in any economy. When it comes to commercial real estate, many veteran investors are already beginning to take countermeasures in order to prepare for the next economic downturn. The commercial property prices witnessed rapid growth in the past 10 years and many capitalists are hypothesizing a correction is just around the corner.
To conclude, there are multiple ongoing issues pertaining to commercial real estate that can both positively and negatively impact our industry in the coming years. Both the current political imbalance and climate change alone are increasing investment costs and FUD (Fear, Uncertainty, and Doubt) in the real estate market.
As an investor, by staying conscious of the various factors that are currently affecting commercial real estate investments across the United States, you can greatly increase the chances of maximizing your net returns through pursuing efforts to mitigate marginal uncertainty such as redistributing your portfolio to meet changing commercial property demands, preparing for climate changes that may affect your existing properties, and correctly timing your capital investments to overlap with future economic downturns.
Interested in learning about more factors that you may need to consider before investing in your next commercial property? Contact one of our professional commercial brokers to get started today!