If you are looking for new opportunities in commercial real estate, you might wonder which markets are the most promising and how to identify them. In this article, we will share some tips and criteria to help you find the best locations for your investments and projects.
One of the most important factors to consider when evaluating a commercial real estate market is the balance between demand and supply. You want to look for markets that have strong and diverse demand drivers, such as population growth, job creation, income levels, business activity, and tourism. You also want to avoid markets that have oversupply or low barriers to entry, which can lead to lower rents, higher vacancies, and increased competition.
There's a reason why the 3 most important rules in real estate are location, location, and location. Real estate markets can vastly differ from one location to another. The most "promising" markets are those that have strong locations (not only geographically but with regard to access to strong employment opportunities and educational opportunities). In addition, if the market can provide realistic opportunities for affordable housing and can provide both residential and commercial real estate opportunities for the aging baby boomer population, that combination should make the market promising.
Currently, the most promising sectors within the commercial real estate market are Class A office properties, as the Return to Office model gains momentum globally. Following closely are hotel properties, which are experiencing heightened demand as travel and tourism rebound post-Covid. Anticipated rate cuts in the near future are expected to inject additional funds into the economy, leading to increased spending on travel and tourism.
If the demand is strong, barriers to entry can be a good predictor of sustainable long term growth. In constrained markets with high replacement costs, rents need to rise to a level that justifies new investment.
Demand and supply is Economics 101. Real estate is an industry of cycles and it is hard to predict exactly when one cycle begins and when one cycle ends. There is never a perfect balance between supply and demand. Canada for example needs over 5 million new homes by 2030. This is obviously on the supply side and will help to make housing more affordable. A market that is under supplied leads to higher prices. One of the drivers for the demand of housing in Canada currently is immigration. We’re in a housing crisis so identifying markets in need for supply of housing in Canada is a no brainer.
Industrial real estate in Florida's major markets (Tampa, Orlando, Miami, Jacksonville) remains robust. Despite a slight cooling in the current cycle, low supply, continued demand, strong population growth, and solid rent levels make these markets attractive. Given the strong market fundamentals, we believe industrial properties will continue to be an excellent choice for investors and landlords.
Another factor to consider is the market cycle, which refers to the stages of growth and decline that a commercial real estate market goes through over time. Depending on your strategy and risk tolerance, you might prefer markets that are in different phases of the cycle. For example, if you are looking for value-add opportunities, you might target markets that are in the recovery or expansion phase, where occupancy and rents are rising. If you are looking for stable income, you might target markets that are in the maturity or contraction phase, where occupancy and rents are high but slowing down.
Picture this: You're exploring a new market. Begin by assessing its current position in the cycle. Is it in an expansion phase, with increasing demand and rising rents? Or is it in a contraction phase, with decreasing demand and stagnant rents? Keep an eye on key indicators like vacancy rates, rental prices, economic trends. Now, let's talk strategy. In an expansion phase, consider investing in properties ready for growth. Look for opportunities to add value and capitalize on rising rents. In a contraction phase, focus on risk management. Be cautious with new acquisitions and consider diversifying your portfolio. Market cycles are a natural part of the industry and can be successfully managed with careful analysis and strategic planning.
The two most effective ways to fully understand a local market cycle is 1. Speak to the local brokers 2. Track the historical cap rate data Typically, there is cycle to "buy" and cycle to "sell". For value-ad opportunities, always find a right comps that has similar quality with the target property with potential valuation. See how much rent/lease they are charging and their latest cap rate.
It's important to save when things are going well to prepare for downturns in the cycle. The first reason is to adapt as trends change; also, the best time to buy is during the recession phase.
Understanding the market cycle is crucial in real estate investment. It's a reflection of the stages of growth and decline in a market over time. Investors often adjust their strategies based on where a market lies in this cycle. For instance, targeting value-add opportunities is common in recovery or expansion phases, where occupancy and rents are rising. Conversely, stable income seekers might favor maturity or contraction phases, where occupancy and rents are high but stabilizing. Recognizing these phases helps investors tailor their approach for optimal returns while managing risk.
Considero que una correcta identificación del ciclo de nuestro mercado en estudio es vital para hallar mercados prometedores. Estar atento y consciente de la etapa por la que cruza el mercado, así como de los objetivos que persiga la marca, negocio o emprendimiento, son clave para capitalizar las oportunidades del mercado.
A third factor to consider is the location and accessibility of the commercial real estate market. You want to look for markets that have good transportation and infrastructure, such as highways, airports, railroads, and ports. You also want to look for markets that have attractive amenities and features, such as natural beauty, cultural diversity, entertainment options, and educational institutions. These factors can enhance the appeal and value of your properties and attract more tenants and customers.
Some crucial accessibility factor includes -proximity to job clusters -proximity to retail clusters -proximity to airports, ports, highways etc -Walkability climate risk & natural disaster factors to avoid -Flood zone -Earthquake zone -Tornadoes& hurricanes
How amenable is public transport? particularly trains , either light or heavy rail. Is a high frequency bus stop nearby? No one wants to commute solely by one form of transport to work. Workers have a variety of needs that must be accommodated with accessible access via a number of transportation methods.
Start by examining property’s location. Is it situated in a prime area with high visibility and easy access to major transportation routes? Consider the surrounding neighborhood – is it thriving with businesses and amenities? Next, assess accessibility. Is the property conveniently located for both customers and employees? Take into account factors like proximity to highways, public transportation options, and parking availability. Let's talk strategy. A prime location with great accessibility attracts top tenants,commands higher rents. Conversely, less accessible areas may require additional investment. Remember, when it comes to commercial real estate, location and accessibility can make or break your investment success. Choose wisely.
Given the current WFH model that was adopted during Covid, this space has been hit… HARD. Trends change and this will not be immune to those changes. Smart move is retro fitting these spaces to young professionals in a communal living space to draw some income to offset the Note, while looking for commercial renters. Anything less is short sided “traditional” thinking without possibility of transition to monetary advantage.
The fundamentals are fundamentals for a reason. They are tried and true. These factors stand the test of time. In real estate, it's location, location, location. You can change a building, even tear it down, but you can't change the location (except in very unique situations, such as a Victorian house you can place on a flatbed and move across town). The same goes for accessibility. An investor can buy the best building in town, but if it's tough to get to, tenants will not go out of their way to look at it, let alone sign a lease there.
A fourth factor to consider is the trends and opportunities that are shaping the commercial real estate market. You want to look for markets that are adapting to the changing needs and preferences of the consumers and businesses, such as technology, sustainability, health, and wellness. You also want to look for markets that are offering new and innovative solutions and products, such as coworking spaces, mixed-use developments, and adaptive reuse. These factors can create new niches and segments for your investments and projects.
I would admit I have an inherent bias towards markets/and types of commercial real estate investments, with my career focused on markets where seniors are choosing to retire and commercial properties that can be purchased/repurposed into residential living for seniors. My opinion is investing in senior housing within commercial real estate offers various benefits. The aging population creates a growing demand for senior housing, providing a stable and potentially lucrative market. Additionally, long-term leases from senior housing operators can offer reliable income streams, with multiple government programs supporting senior housing and reducing financial risks for investors.
In commercial real estate, staying abreast of trends and seizing opportunities is key. When analyzing the market, begin by identifying emerging trends, such as the rise of remote work or the growth of e-commerce. Consider how these trends impact property demand and usage. Next, keep an eye out for opportunities. This could include repurposing properties to meet changing needs, such as converting retail spaces into distribution centers or office buildings into co-working spaces. Additionally, explore niche markets or underserved areas where demand is on the rise.
A prime example of trends and opportunities is the area of Cape Canaveral, which I have been studying for the last three months. This area requires high-quality labor that is very well paid, and there's a demand for high-quality apartments with few products available. It is noteworthy that vacancy rates are very low, even for older buildings. Additionally, there's a great opportunity for resorts, especially if companies like SpaceX, Blue Origin, and others soon start selling tickets for a closer glimpse at the moon.
To get in front of trends and opportunities, Data Analytics, especially from the realm of Marketing, can be of great value. By the time trends are published, the data is dated. Go back to Intent and Search data to see what is on the horizon - you'll be amazed at what you can learn!
In Dubai, the commercial property market has witnessed significant dynamics in recent years. Despite experiencing an oversupply of office space previously, increasing demand has absorbed much of this excess supply. As a result, the market is now witnessing a shift where demand is beginning to outstrip supply, leading to a resurgence in prices. To further stimulate demand for commercial real estate in Dubai, various initiatives have been introduced. One notable initiative is the One Free Zone Passport, which enables free zone companies to expand their operations into mainland Dubai. Such initiatives are expected to drive demand for office space across the city in the foreseeable future.
A fifth factor to consider is the data and analysis that are available for the commercial real estate market. You want to look for markets that have reliable and transparent information sources, such as brokers, appraisers, consultants, and associations. You also want to look for markets that have robust and comprehensive data sets, such as vacancy rates, rental rates, absorption rates, cap rates, and sales volumes. These factors can help you make informed and objective decisions and compare different markets and submarkets.
The most promising CRE markets can be identified through a thorough analysis of market data. This includes evaluating trends in employment rates, population growth, & economic development. Markets showing positive trends in these areas often present lucrative opportunities for CRE investments. But, the foundation of any sound CRE investment decision is the quality of information at hand, & the depth & breadth of data will give you an edge. With robust data at your disposal, your decision-making process becomes more informed & objective. This data-driven approach allows you to compare different markets & submarkets on an apples-to-apples basis, stripping away biases & enabling decisions based on solid analysis rather than intuition.
As a data enthusiast and researcher, it's imperative to seek out high-quality data. However, data must be structured to align with the specific vocation and unique aspects of each real estate project. This is why I advocate for tailor-made data solutions for each scenario. I am also passionate about the availability of real estate data on the blockchain. In my view, for a project to be tokenized, it should have all its documents, plans, licenses, etc., registered on the blockchain. Therefore, in a future where tokenization prevails, having data feeds with price references will become essential.
Analyze demographic and economic statistics and data in granular market boundary with enough size of sample; e.g., census tract. Try to find comparable properties with your target property and analyze trends in rent, cap rate, vacancy etc. For retail, consider analyzing foot traffic and transportation data. Compare thoroughly between various submarkets to find out the most feasible submarket for your investment target and thesis.
In my experience which is primarily residential with some light commercial sales I would say, I completely agree with the number 1,2,&3 choice however I would have put data analysis in the 4th position because it’s so heavily relied upon in real estate in general. I feel that looking at vacancy rates is extremely important! Real estate is cylindrical even in the commercial sector, when Covid 19 hit, I knew we’d feel that impact for years to come. Have you look around your city and noticed so many big empty buildings? Those still cost money, they still have maintenance, they can become a place that gets vandalized and an entire area can go downhill. Just my opinion!
I am a strong believer that all stakeholders on the team should engage in deep and detailed due diligence relative to the scope of the proposed transaction. I my 45+ years of experience, I strive to include in an acquisition contract approval of a host of pertinent matters; including, but not limited to, existing zoning, entitlements, building codes, sign offs by applicable governmental agencies such as municipalities, county, state and federal agencies i.e. FEMA, DNR, ARMY CORP OF ENGINEERS, REGIONAL STORMWATER MANAGEMENT, and any other interested parties/agencies having jurisdiction. The PSA should provide adequate time to conduct such due diligence that is due in light of the magnitude of the proposed transaction.
A sixth factor to consider is the network and relationships that you have or can build in the commercial real estate market. You want to look for markets that have strong and supportive local communities, such as landlords, tenants, developers, lenders, and regulators. You also want to look for markets that have potential and existing partners, such as agents, managers, contractors, and investors. These factors can help you access and leverage the resources and opportunities that the market offers and overcome the challenges and risks that it poses.
If you're building your portfolio, start by expanding your network within the industry. Attend networking events, join professional organizations, and connect with peers and mentors. These relationships can provide valuable insights, opportunities, and support. Additionally, prioritize building strong relationships with clients, tenants, and service providers. This builds trust, loyalty, and repeat business. Always remember, in commercial real estate, your network is your net worth. So invest time and effort into it, as strong relationships can be the key to long-term success.
You need to network with local market experts including -brokers -owners/sellers -operators -general contractors -LPs -Attorneys -Architects And many more. Remember real estate investment is not just done by real estate investors. You need to build a solid relationship with various type of experts who have boots on the ground of your target market.
Building a strong network and relationships in commercial real estate provides valuable insights into promising markets. Local experts, brokers, and developers share proprietary data, market trends, and growth prospects. On-the-ground intelligence and real-time information help you stay ahead. Network contacts facilitate deal-making and collaboration. Due diligence is enhanced through additional perspectives and validation. Leveraging your network makes informed investment decisions easier. Relationships are key to unlocking hidden opportunities in commercial real estate.
One thing to consider are the universities surrounding your city and how can you add value to the student-housing! Such an untapped area of development with the NIL of student-athletes and overall state of higher education as a whole! Bringing a luxury student housing to your market will bring even more business to your communities!
Unverzichtbar sind das eigene Netzwerk. Beziehungen sind ebenfalls von gro?er Bedeutung bei der Identifizierung vielversprechender Gewerbeimmobilienm?rkte. Branchenkontakte erm?glichen den Zugang zu Informationen aus erster Hand, einschlie?lich Insiderwissen über lokale M?rkte, bevorstehende Entwicklungen und potenzielle Investitionsm?glichkeiten.
Make sure to find the best broker there is for your specific product type and niche and make them your best friend! Learn from them, bounce ideas off of them, get on their short list and make sure to give timely and thorough feedback on EVERY deal they send you!
Herd mentality and other cognitive biases play an outsized role in the real estate market. Banks, deal sponsors, brokers, and equity investors claim tend to look at the same data about population growth, supply, and demand, and make the same conclusions about where to invest. Moreover, many of them are prone to believe they’re making the right decisions by looking around and seeing that everyone else is acting the same way. This leads to greater fool investing, where owners hope they can sell to the next fool before the music stops. This kind of groupthink also makes investors overlook profitable markets that don’t have Top 10 list population growth. It’s critical to tune out the crowd and look for opportunities that others are missing.
Landmark properties are the least affected by economic cycles . They’re like holding cash always multiple buyers waiting to acquire.
From a brokers point of view and to protect our clients, it’s important to know that the commercial lending world in the Uk is actually a very small world. My advice would be….find a broker you trust and stick with them. Brokers can predominantly see the same lenders and we all build our own relationships with them. Each broker will have their specialties too. I am “regulated” for example so we do a lot of Regulated Bridging whereas others may do more Development Finance for example. The main point however is if you are speaking to two or three brokers at the same time to try and get the best deal, you run the danger of your enquiry landing on a lenders desk numerous times and this will only make the lender nervous as to why..
Some other ways to do it: Growth: Look for cities with strong job markets, young populations, and booming industries. Think Austin, Nashville, Tampa. Stability: Consider established economies with steady population and rent growth. Think Seattle, Boston, Charlotte. Emerging gems: Watch for suburbs with good infrastructure, affordability, and strong local economies. Think Raleigh-Durham, Denver suburbs, Atlanta outskirts. Do your homework: Research demographics, vacancy rates, rental trends, and local news. Talk to brokers and investors! ?