Thinking of investing in commercial properties?
Affluent investors take special interest in commercial real estate as a strategy to build and consolidate wealth. Recent studies found that these investors receive an average of $1.2 million in revenue every year from their rental properties.
Commercial properties are a good source of income especially at a time when latest market trends favor real estate investors. However, commercial real estate is a tough market to break into and you can potentially lose revenue on vacant properties.
But having said that current market trends favor investors heavily invested in commercial real estate, you might want to give this strategy a shot. To guide you on your decision, here are some forecasts to look out for.
Good news is that the commercial real estate market is slowly building momentum, according to the National Association of Realtors. This real estate sector is benefitting from favorable fundamentals and absorption dynamics such as record-low construction activities, which subsequently drives rising rent prices and low vacancy trends.
Vacancy rates for commercial properties are expected to fall over the next quarters according to the trade association. They forecasted a 1% drop in vacancies for the office market, 0.6% in the industrial sector and a 0.2% decline for retail properties. Meanwhile, as vacancies drop, rents are expected to rise by 2.5% in office rents, 2.2% for industrial properties and 1.4% for the retail sector.
Conversely, risk management and consulting firm, Deloitte LLP predicts a “potential pause in recovery momentum”. Would-be investors should also take note of their opinion that this year’s commercial real estate outlook include “some market indicators trending downward” and that forecasts are decidedly more mixed—having both a positive and a flip side.
Commercial real estate is heavily dependent on the general economy and job generation. According to NAR, assuming that there will be no fiscal cliff, the US economy is predicted to grow by 2.5% percent in the coming year with a modest job creation. To date, real estate loan delinquencies remain high while credit markets remain volatile, and mortgage lending standards continue to tighten.
According to commercial real estate experts, while the demand for commercial space will gradually rise, other factors threaten the market sector’s full recuperation. Nevertheless, Deloitte says in its report, the commercial real estate market “appears to be on a gradual but uneven path to recovery”.
Ask expert advice for real estate investments this 2012 from mortgage bankers at PrimeLending. Contact us today and find out how we can help you maximize your resources.