Investors Finding U.S. Commercial Real Estate More Attractive in 2014

| April 28, 2014
Although it took a lot longer than most experts expected, the U.S. housing market has experienced a slow and steady rebound in the wake of The Great Recession. As prices and purchases are finally on the rise nationwide, so are confidence levels, which are gradually returning to pre-recession levels.

But what about the commercial real estate market? How did it fare during in the worst economic downturn since the Great Depression?

The good news is that office, retail, industrial, and apartment submarkets did not suffer the complete and total collapse analysts had predicted. That does not mean that the commercial market escaped unscathed. Both rents and occupancy rates declined, but not nearly as dramatically as expected. Unlike in the residential market, there was no selling frenzy, since owners were unwilling to depart with their properties until the market stabilized.

Where Are We Now?

According to most polls, economists and insiders have grown increasingly optimistic about the future of the commercial real estate market over the past year. In fact, a recent survey conducted by the Urban Land Institute and Ernst & Young found that the average respondent
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expected transaction volume to increase by a healthy 7% from last year! They were even more optimistic about the recent uptick in the issuance of commercial mortgage-backed securities, which are the main source of financing for commercial real estate investors.

Is it Time to Buy?

If the housing crisis taught us anything about investing, it’s that real estate of any kind can be a risky play. Markets can rise or fall on a dime, leaving investors either smiling or shirtless. All we can say for sure is that after a protracted period of uncertainty, buyers are reentering the market in growing numbers. And as with anything else, as demand increases, prices should go up as well. So, if you’re worried about missing your window, it may be a good idea to start searching for deals in the commercial market today.

Rent or Buy?

No matter the state of the market, business owners must decide whether they should rent or buy a commercial property.  Like any other investment, there are pros and cons that come with either choice. On one hand, the renter has greater protection against market crashes, since he/she doesn’t actually own the property. But on the other hand, the owner has much greater control over the cost of overhead, since he/she doesn’t have to worry about rising rent costs. But whatever your decision, it’s always a good idea to contact a real estate attorney before you sign anything.

Office DirectoryDo You Need Legal Guidance?

A real estate lawyer can help you complete the transaction by negotiating favorable terms with the lender and/or seller.  Even if you have experience buying or renting properties, we strongly discourage anyone from putting their John Hancock on a contract without consulting a lawyer.

This goes double if you are interested in purchasing commercial real estate, which is a far more sophisticated and confusing process than residential real estate. In this scenario, it is imperative that every possible contingency be spelled out in clear, concise detail in the contract. Only then will you be protected from unscrupulous sellers who create intentionally ambiguous contracts to gain the upper hand.


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Evan M. Sauer
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