Commercial Real Estate Sales and Values Surge to Records

The COVID-19 pandemic has wreaked havoc on the commercial real estate industry. However, the good news is that it is recovering. According to The Wall Street Journal, investors bought a record amount of commercial real estate in the third quarter of 2021.

Office complexes or shopping malls don't drive the commercial real estate boom as they usually are. Instead, apartment complexes, life-science labs, and industrial properties that service e-commerce distribution hubs have been the most critical drivers in the commercial sector.

According to Real Capital Analytics, declines in the office building and shopping center sales during the early days of the pandemic were offset by a large number of sales in other commercial sectors. There were also increased purchases made by foreign investors.

Why Do Investors Have Their Eyes On Commercial Buildings?

Investors have flocked to commercial buildings compared to the bond market because of the excellent rates. "With simply their bond portfolios," said Jim Costello, senior vice president of Real Capital Analytics, "pension funds will not be able to reach their 8% targets."

According to an index produced by Green Street, a real-estate data and analytics firm, sales increased commercial real-estate values to new heights. The index monitors real-estate investment trusts' property holdings, up roughly 22% from its pre-pandemic low in the summer of 2020 and 8% from its pre-pandemic high. The Federal Reserve is widely credited with preventing the debt markets from collapsing, allowing many distressed property owners to obtain new funding.

Financial institutions made $102 billion in loans to property owners broken up into commercial mortgage securities in the first nine months of 2021, the biggest volume for nine months since 2007. When the economy started to revive, banks and unregulated nonbank lenders began to open the debt spigots.

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What Is the Most Profitable Commercial Real Estate?

The properties that can generate the highest return on investment often have the most tenants. Among these properties are RV parks, apartment complexes, student housing, office buildings, and storage facilities.

Are Commercial Property Prices Rising? 

According to the CoStar Commercial Repeat Sales Indices, prices of industrial and apartment buildings increased by double digits in the third quarter of 2021. 

Prices in the office and retail sectors climbed more slowly, but they have recovered from early-pandemic falls. Cap rates are low, reflecting the low-interest-rate environment, and the cap rate spread to Treasury yields is comparable to the previous decade.

Why Are Commercial Properties Expensive?

Commercial properties are more valuable than residential ones since they are usually larger, in central locations, and have more services and resources. The cost of leasing a business property is primarily determined by its location. Furthermore, businesses rent or lease commercial buildings; these tenants usually have more financial resources than residential renters and can afford to pay a higher rate for the usage of commercial premises.

What Increases Commercial Property Value?

Increasing the value of a commercial property by adding extra space, or subdividing it, can make a big difference. Because both are always in great demand, adding spaces such as parking or storage can readily boost value. Expansions, renovations, and unused finishing space are all strategies to help achieve this. 

The property's structure should be up-to-date, comparable in quality to the surrounding structures, and match the aesthetic and style of the neighborhood. It's also crucial to get its HVAC system up to date with the latest energy-saving technology. It will also enhance value by replacing the structure's water heater and lights.

Add security features like alarm systems, gates, and shutters to your property to make it more appealing to tenants and raise its value. These features also lower your insurance premium.

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How Do You Assess Commercial Property Value?

The appraised value of a commercial property is typically a factor in deciding whether to buy, sell, borrow, or lease it. It's not easy to figure out how much it's worth. Commercial evaluations are often more subjective than residential appraisals, whether an apartment building, an industrial complex, a retail shopping center, or an owner-occupied business facility.

Uncontrollable factors such as the current market price for rented spaces, the lack of comparables, and overall upkeep expenses often influence commercial values (vary dramatically from industry to industry). A buyer's willingness to pay a certain amount is, of course, a complicated issue.

The Unexpected Turn In the Real Estate Industry 

Many people expected the commercial real estate industry to collapse in past recessions and when the pandemic-driven recession hit the economy. Large sums of money were put into distressed real-estate funds to snatch up shabby properties at a bargain price.

However, as e-commerce grew and retailers needed more storage space during the pandemic, the demand for warehouses and distribution centers increased. The multi-family property became even more popular during the pandemic as home-sales prices rose, forcing many potential buyers to remain tenants.

Compared to their levels before COVID-19, the value of these sectors has increased by 41% and 19%, respectively. The near-record $379.4 billion private equity real estate funds have to invest in commercial property is a sign of institutional demand.

Foreign Investors Are Getting Their Feet Wet

Investors from other countries are also becoming more engaged. A 49 percent share in the News Building, at 220 E., Manhattan was purchased by Meritz Alternative Investment Management of South Korea, which was also the buyer in two of the most significant commercial purchases this year. The first large Korean commercial-property transaction in the United States during the pandemic was a Seattle office building in the fall of 2020. Since then, the pace has grown with a 49 percent ownership in the office building at 655 New York Avenue NW in Washington, D.C.

What Is Commercial Real Estate Analysis?

A commercial real estate market analysis aims to establish plausible assumptions for use in financial models and to guarantee that the market and property satisfy your standards in terms of quality.

Investing in Commercial Real Estate

Commercial real estate transactions and values rose to new highs last year. Strong fundamentals, such as strong job growth and a limited supply of suitable properties, are helping the commercial real estate market. This is why some of the most prominent drivers in the commercial sector have been apartment complexes, life-science labs, and locations ideal for e-commerce distribution hubs.

Now could be an excellent opportunity to buy your Charlotte, NC commercial investment property! Contact me, Nancy Braun, and our team of real estate experts will take care of your real estate transaction.

Showcase Realty is an award-winning brokerage known for its digital marketing innovation, superior client service, and for assisting its clients buy and sell residential, luxury, and commercial real estate. To provide clients with cutting-edge results, the brokerage employs top marketing, strategies, technology, and systems at top dollar and in the shortest period. For more information on how we can help you get started in this fast-increasing sector, contact us at (704) 741-8157. Essential tips before you buy. Click here!