In the real estate business, it’s important to know that not all types of commercial properties are equal. Of the four asset classes on the market today — i.e. multi-family, office, retail and industrial — each reap a unique reward.
Before you ink your next deal, consider taking a closer look at what each asset class has to offer.
Apartments/Multi-Family
The phrase “selling like hotcakes” comes to mind when I think of this market niche. Millennials and baby boomers alike are increasingly moving into rentals as opposed to spending a buck on a home of their own.
According to an article written by The New York Times in June 2015, homeownership was down an estimated 64 percent across the the nation, while the average number of rental households in the US had increased by 770,000 each year since 2004. It’s no wonder why investors are heading in this direction.
Multi-family properties allow for multiple tenants, which means intermittent vacancies pack less of a punch. Often, lone investors pursue a small multi-family space with about 50 units, while large syndicates take on the high-capacity spaces, usually fixed with pools or workout spaces.
Be aware that demographics, homeownership trends and local markets play a key role in attracting tenants and that proper management of costs related to rent and maintenance can make all the difference in achieving high rates of return.
Office
Anything from a local bank branch to a highly active medical office fits within the bounds of a potential office building tenant. This type of commercial space can come in the form of a single-tenant building all the way to an expansive multi-tenant space.
What draws the line between this property and the last we discussed is the fact that rental rates and property values are closely intertwined with the economy and local employment. These types of properties don’t experience the same level of demand as multi-family, but they have the potential to offer investors a steady rate of substantial return from a handful of tenants.
The process is much more involved for the investor, meaning leases are often more long-term and typically require specifications related to rent, signage and future options to purchase the space. Depending on the size, these types of spaces can remain vacant for years, so aim to invest in a property with existing tenants with long-term leases already on the books.
Retail
We’ve all shopped at a retail center, whether it be our local grocery store or a mega mall. For investors, these deals can be lucrative and they rely substantially on the state of our national economy and buying practices of the American public.
According to a report from Colliers International, there is 6 billion square feet of leased retail space in North America alone. And despite a growing interest in shopping online, consumers are still flocking to commercial centers in droves. In a month, about 200 million adults visit retail centers, Colliers International reports.
These types of leases are often long-term and include a base rent plus a percentage rent pulled from annual sales figures. Investors are commonly required to adhere to the aesthetic preferences of the tenant to ensure the space meets the standards of their brand.
Industrial
If you’re prepped and ready to take a risk, this may be the right investment for you.
Manufacturing facilities, warehouses, research and development centers and more comprise the industrial property niche. As an investor, it’s your job to make modifications to the property to ensure it meets the standards and needs of a sole tenant.
These properties are hard to fill once left vacant and are largely influenced by the global economy. However, once the property slot is filled, tenants often agree to a long term lease, leading to a steady and fruitful performance over time.
In the wise words of actor Will Rogers, “Don’t wait to buy real estate. Buy real estate and wait.”