What are the Best Investment Strategies for Commercial Real Estate in the Current Market?

The real estate industry has periodic ups and downs. However, the current market is facing a number of unprecedented challenges. Rising interest rates have made sales difficult or even impossible in some instances. Furthermore, they have led to the collapse of some banks and caused many others to limit credit options for investors and potential buyers alike. Supply chain shortages and rising inflation continue to plague the economy and will likely do so for the foreseeable future. However, the good news is that it’s not impossible to turn a profit on commercial real estate even during difficult times. In fact, those who know how to invest wisely can find unique opportunities that will enable them to boost their portfolio and profits long-term.

Residential rental properties tend to perform well in the current market. Everyone needs a place to live and many people are either unable to obtain a mortgage or are choosing to wait for mortgage rates to go down before trying to obtain one. Multifamily units have generated higher profits than other real estate investment options for many years and they are poised to continue to do so for the foreseeable future. They tend to have a low vacancy rate and the owner can raise rents to keep up with inflation. Mixed-use developments can be another ideal investment option to consider this year, especially for investors who are familiar with this asset class and either own a building that could be used for this purpose or can obtain one at a bargain price this year. Mixed-used developments not only provide rental income from residential tenants but also long-term lease income from local businesses who are eager to set up shop right next to a sizable potential customer base.

Another winning strategy is to invest in space that can be purchased, leased, or rented to clients in the medical industry. Medical office buildings are a low-risk option that can generate high returns as a growing portion of the population hits retirement age and thus needs more medical care and assistance than in times past. While these buildings need amenities such as high-end soundproofing and a specialized HVAC set-up, it is worth noting that even during the 2020 COVID-19 lockdowns the rent collection rate for MOBs was over 95%. Senior living facilities such as assisted living facilities, independent living facilities, and nursing homes also have the potential to perform well in the current economic environment. Recent stats show that assisted living facilities tend to be more profitable than many other commercial real estate asset types. What’s more, the profit potential is likely to rise long-term as the population ages and demand for such facilities grows. However, this isn’t an investment option that a person should enter on a whim. While it may cost less to develop an assisted living facility than a medical office building, one would want to become familiar with the market, current trends, and consumer expectations before entering this field.

The commercial real estate market has changed drastically in the last few years. Investments that performed well in times past won’t necessarily generate returns in the current market. The asset classes outlined above have a track record of performing well even during economically challenging times and have the potential to perform well long-term. Multifamily complexes, mixed-use developments, medical office buildings and senior living facilities are great options for investors looking for low-risk investments with a high profit potential. However, this doesn’t mean they are automatically the best investment option for every single investor. There are multiple factors to bear in mind when investing in real estate, including cost, location, potential target demographic, as well as one’s short and long-term financial goals. Investors should do careful research before jumping into any new market to ensure they fully understand the pros and cons of any given investment.

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