Commercial Real Estate Market Cycles - Are We Upside Down or Down Side Up?
By Andy Mitchell, Broker, Bentley Commercial LLC
I once heard someone say, “Everyone thinks they are a real estate expert … just go to any cocktail party around town and you’ll find that out.” The overwhelming majority of the talk and press about the future of real estate markets is that the economy is doomed and investing in commercial real estate is way too risky. The truth is, even in a downward economy there are still numerous opportunities for successful investments in commercial real estate, particularly in Greenville and the Upstate. In fact, real estate cycles have been a significant reason for many of the financial successes of real estate investments throughout history.
Virtually every phenomenon in life, nature, politics, and business is cyclical by nature. Real estate is no different. Sure…incomes may be down, cost of living is up, gas prices are through the roof and Americans are feeling increasingly grim about the economy and where it is headed. What is most interesting is that these patterns have persisted for years – and somehow people still continue to make money investing in property. Knowledge of cyclical behavior in commercial real estate markets provides a strategic advantage to an intelligent investor who seeks to reap the profits and returns achievable on the upside of the cycle, but avoid the losses and negative returns that occur on the downside of the market cycle.
As a commercial real estate broker in the Upstate, I counsel buyers, sellers, landlords, and tenants regarding market cycles. I help them to understand both the positives and negatives of investing in commercial real estate and how these cycles can affect them. The following are a few positive cyclical influences on returns and property values that can be experienced during a slowdown in the economy.
• Greenville is in a favorable phase of the market cycle, not to mention that this area has weathered the storm much better than the majority of the country. We are experiencing improvements in market fundamentals and upside opportunities despite a slowing national economy.
• Markets are generally self-correcting. Better risk analysis and risk management results in more rational pricing and higher cap rates.
• The potential requirement of more equity by lenders and good conservative underwriting practices will discourage overbuilding.
• The majority of the quick-flip, speculative investment opportunities are less prevalent — more rational, well underwritten, long-term investments are starting to prevail.
• Investors whose balance sheets show good liquidity may have the ability to negotiate more favorable loan terms and have less competition in the market place. In times like these, lenders are looking for investors with staying power.
Successful investors are able to see past the current economic conditions and take advantage of their knowledge of real estate market cycles. A knowledgeable commercial real estate broker can advise you about real estate market cycles and assist you in making smart decisions as you invest in real estate.
Andy Mitchell would like to talk with you about your commercial property or investing in commercial properties…give you some personalized suggestions and information that could help you understand real estate market cycles and how to use them to your advantage. Whether you lease, own, invest, develop, sell—with Bentley Commercial (an affiliate of CORFAC International), you will find an expert team committed to you, and your short and long-term commercial real estate success.
