The Advantages of Commercial Real Estate

Investing in real estate is a great way to put your money to work in this economy.  With the many different types of investments that are available, it has been proven time and time again that commercial real estate has an enormous amount of benefits.

Often times, commercial real estate leasing contracts are longer than those of residential.  Residential real estate leases are usually short, whereas the commercial properties typically have lease agreements from 5-10 years in duration.  Assuming the tenant(s) do not vacate or go out of business, this long term provides for stability in the investor’s portfolio.  Advertising and marketing costs are much lower in commercial real estate properties as well due to the lower turnover rate.  People often switch apartments within 1-3 years, however, businesses do not move as frequently.

Another advantage of commercial real estate is there is typically less maintenance responsibilities for the property.  Triple net lease agreements provide for all maintenance of the property be the responsibility of the tenant.  In residential real estate, it is usually the investor’s responsibility to take care of the property and any associated maintenance and/or repair work.

Commercial real estate investing is a profitable endeavor if you have the time and patience to put into it.  On the other hand, it can also be a very risky business if you have not done the proper research or sought the advice and assistance of a commercial real estate professional.

Commercial Real Estate Pricing Trends for 2012

There seems to be mixed results with the commercial real estate pricing trends this year.  It appears that the General Commercial sector is rising, while the Investment Grade is decreasing.  However, one fact is certain, and that is that we are continuing on with recovery in this field.  According to CoStar the steady increase of the General Commercial sector is the main clue that the recovery is continuing.

Here are a few important facts that were found in the April release by the CCRSI:

·   Due to a dip in Investment Grade pricing, the US Composite index showed a decline of 1.3% in February 2012.

·   The Investment Grade index showed a decline of 6.6% in February.

·   The three major commercial property types are office, retail, and industrial, and they have been positive in net absorption of both general commercial and investment grade.

Even though the Investment Grade index declined 6.6% in February 2012, that actually is a trend.  Typically the Investment Grade shows a decrease within the first 2 months of the year.  Although the trend may suggest otherwise, investment grade properties have increased 11.5% since 2009.  These investment grade properties seem to be doing better than the general commercial properties.  

Although it has remained relatively consistent, the General Commercial index has shown improvement over the Composite index.  CoStar states that a reason for this is partly because of the increase in demand for general commercial properties, and a diminishing higher end of the market to net absorption. The good news is that the increasing absorption of general commercial properties is not a sporadic event.  The results show this to be a steady increase that can be expected to hold.