5 Reasons You Should Be Investing in Real Estate Now
Friday, May 15th, 2015
By: Steve Goldman, CCIM
Photo courtesy of 401kcalculator.org
Ask the Magic 8 Ball, “Is now the time to get into commercial real estate investing?” and it would probably say, “Signs point to yes.” Of course, you want more than a plastic oracle (no offense, Magic 8 Ball) to guide your investment decisions. So here are 5 reasons you should be investing in commercial real estate now:
The Recovery Continues
The recovery continues across all property types and most U.S. markets. The latest CoStar Commercial Repeat Sale Indices showed that:
- Two broad measures of U.S. commercial property pricing — value-weighted and equal-weighted U.S. Composite Indices — continued gaining. The equal-weighted index has now recovered within 12% of its pre-recession high, its highest average since 4Q 2008. The value-weighted index surpassed its previous 2008 peak by 8.8% in February.
- The General Commercial Index property segment increased by 13.4% over the March 2014-March 2015 period.
- Net absorption levels rose for the 12 months ending March 30 – 39.6% above the previous 12-month period.
Real estate giant Colliers also reports that the office market is the strongest since the recession, with an increasing absorption rate and a decreasing vacancy rate (now at the lowest level since Q1 2008).
Money is Flowing
Banks are lending and interest rates have not yet risen, so investors are pouring money into the market. Peter Burley and David Lynn, contributors to the Urban Land Institute’s new book, The Investor’s Guide to Commercial Real Estate, expect investment capital to keep flowing into the commercial real estate market. With high-net-worth investors taking advantage of real estate’s positive risk/reward opportunities, Lynn and Burley think this could even push capital values above 2007 peaks.
Jobs are Increasing
Create jobs and investors will follow. This is excellent news for East Tennessee, as Knoxville and the Innovation Valley have had an influx of new employers in the last year. Here are just a few:
- Fresenius Medical Care manufacturing facility at Forks of the River
- Cirrus Aircraft at McGhee Tyson Airport
- Hicks Plastics in West Knoxville
- SL Tennessee, LLC in Oak Ridge
In addition, Oak Ridge Main Street will bring job opportunities, as will the redevelopment of the Alcoa West plant.
Multifamily is Going Strong
We’ve seen it with our own clients: Multifamily is hot. Whether you’re buying a $150,000 duplex or a $1.5M apartment complex, multifamily is bringing excellent returns on investment. Investment properties offer some of the best cash flow and long-term appreciation opportunities in the market.
NNN is on the Rise
Investors are high on net-lease properties. While you have to have more green to get in this game, the “mailbox money” factor makes these favorites with high-net-worth buyers. Tenants pay taxes, insurance and building maintenance and owners sit back and collect a check. Of course, you have to make wise decisions about where and when you buy but that’s where your broker comes in, to help guide you to the right property.
Search for a net-lease property
For East Tennessee buyers, the news couldn’t be better. As we noted in our 2014 year-in wrap-up, Globest.com reported that “investors are making their way to tertiary markets like Knoxville, and are chasing yields that they can’t find in first- and second-tier markets.”
If you’ve been thinking about diversifying your portfolio to include real estate, or adding to your existing real estate portfolio, now’s the time. The Wall Street Journal reports that most economists see the Fed raising rates in September. Take advantage of a hot market — don’t let this opportunity slip away.
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