Many investors look for real estate opportunities as alternative investments to equities and bonds. Commercial real estate, in particular, has the potential to provide the property appreciation plus stability that most investors want, particularly in times of economic instability. Because of its steady returns, passive income, and growth potential, commercial real estate investing is one of the most enticing alternative investment opportunities.
What is Commercial Real Estate?
Commercial real estate investing is defined as property that is utilized only for commercial and business reasons. Commercial real estate is broad and extensive, ranging from a single store to multi-story shopping malls. Hotels, strip malls, resorts, healthcare facilities, restaurants, and office spaces are all examples of commercial real estate.
US Commercial Real Estate Market Outlook: 2023
In the aftermath of the pandemic-induced slowdown, the commercial property investment market saw a drop in investor mood, which was exacerbated by international travel restrictions and regional lockdowns. Nonetheless, investment in the industry increased in 2021 and 2022. The multifamily, industrial, and office sectors performed the best, with transaction activity totaling 279 billion USD, 142 billion USD, and 109 billion USD, respectively. Northern New Jersey, Miami, and New York-Brooklyn will be the trendiest areas for industrial real estate in 2023, according to analysts. Investors are most interested in the office markets of Miami, Raleigh/Durham, and West Palm Beach.
Benefits of Investing in Commercial Real Estate
There are several types of triple-net leases. However, the primary idea is that you, as the property owner, are not required to pay property expenditures. All property expenditures, including real estate taxes, are handled entirely by the lessee. The only cost you'll have is your mortgage. Companies like Starbucks, CVS, and Walgreens generally sign these sorts of leases because they want to retain a look and feel consistent with their brand. So they control those expenditures. So, you, as an owner, receive one of the least maintenance income generators for your money.
The income potential is the biggest incentive to invest in commercial real estate buildings. Based on the current economy, plus external variables, commercial real estate buildings often generate a yearly return on investment of 6% to 12%. This is a substantially wider range than is typical for single-family house properties which range from 1% to 4% at most. Even during economic downturns, commercial real estate has traditionally generated steady returns across the Core, Core Plus, Value-add, and Opportunistic strategies, spanning from 7% to 15%+.
- Passive Income Investment
The best part about commercial real estate investment is it is a passive investment. You can earn rental income and capital appreciation without you doing any maintenance work. A property maintenance company or property manager can manage and handle your property for you.
Commercial real estate property prices get easier to examine and assess. You may obtain the existing owner's income statement plus calculate the price based on that. Consider the person selling is represented by a savvy broker. The asking price should be at a point where investors may earn the typical cap rate of the area for the commercial property type. Residential real estate is frequently susceptible to emotional pricing.
- Long-term rental agreements
Commercial real estate owners lease their properties to tenants. These leases can be 10 years or more. It enables consistent cash inflow over that time period with no additional costs. It makes commercial real estate an attractive long-term alternative for lowering cash flow volatility.
Property maintenance or improvement charges, insurance payments, and even marketing costs can be subtracted from rental income to reduce your overall taxable income. You may also be eligible to deduct depreciation on the property. Depreciation, as defined by IRS Code Section 179, is an annual income tax deduction that allows you to recoup the expenses of specific property over time. When you ultimately sell, 1031 exchanges may assist you delay capital gains taxes. You can execute an exchange and postpone capital gains as long as you invest in another like-kind property and fulfill the other conditions.
Several commercial real estate contracts include a section that asks for an increase in rent periodically during the term of the lease to hedge against anticipated inflationary pressure. The influence that these gains have on income may contribute to increased values. Based on the property, a short-term lease, like 1-year leases in multi-family units, hotel’s daily leases, and 3-year to 5-year leases in industrial and flex facilities, may exist. These leases may enable properties to raise rental income to market prices in order to cope with inflation.
Investing in commercial real estate is wise due to the consistency of its returns and the variety of its possible revenue streams.
If commercial real estate seems attractive to you but you're not sure how to get begin with a commercial real estate investment, contact Assetmonk. Assetmonk is a leading alternative investment platform where our members pool their resources to invest in multifamily and commercial real estate assets rigorously verified by our team of specialists. We will work with you to determine the best investment possibilities for you.
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Q1. What is commercial real estate in US?
A. Commercial real estate is defined as property that is utilized only for commercial and business reasons. Commercial real estate is broad and extensive, ranging from a single store to multi-story shopping malls. Hotels, strip malls, resorts, healthcare facilities, restaurants, and office spaces are all examples of commercial real estate.
Q2. How big is the commercial real estate industry in the US?
A. As of 2021:Q2, the total monetary value of commercial real estate was predicted to be $20.7 trillion.
Q3. What is commercial real estate rental yield USA?
A. 6 percent to 10 percent is the commercial real estate rental yield USA.
Q4. How much is US commercial real estate worth?
A. $ 1.2 trillion is US Commercial real estate worth in 2022.
Q5. What is the largest commercial real estate companies?
A. CBRE Group Inc is one of the largest commercial real estate companies.