We can all agree on one thing: 2020 was a wild year by any standards.
The global pandemic brought the world order to its knees, and the US economy suffered its biggest recession since the Great Depression in 1929. Some would even say that without psychic powers, it would have been impossible to predict the events that unfolded in the past 12 months.
Yet, the commercial real estate market stood its ground.
Who could’ve guessed that a killer pandemic, record unemployment rates, and statewide lockdowns would pave the way for a housing boom in mid-March 2021? And with over 37 million Americans fully vaccinated so far, there’s finally light at the end of the tunnel.
As a CRE investor, we know you’re asking: “Was my previous investment a mistake?” “Is now a good time to put my hard-earned money in real estate?” These are all valid questions, and we’ll try to answer them all below.
This article will take a closer look at the current 2021 CRE market and how you can capitalize on it to drive ROI.
Numbers Don’t Lie
- A total of 5.64 million homes were sold in 2020, up 5.6% in 2019 and the most since 1929. (Pr Newswire)
- The typical US home was worth $266,104 in December 2020, up by $20 587 (or 8.4%) from a year ago. (Zillow)
- Sales rose 22.2% over 12 months leading up to December 2020. (National Association of Realtors)
If anything, these statistics show that the CRE market is very much enjoying a purple patch. There’s a good reason for CRE investors to remain optimistic as the 2021 investment year continues to takes shape.
Will Real Estate Prices Continue Rising?
Yes. Many experts predict another strong housing market in 2021, with home prices set to rise by a whopping 5.7%.
Expect increased housing demand from three sets of people:
- Existing homeowners who need more space to accommodate parents working from home
- Buyers who delayed purchasing new homes because of the uncertainty brought about by COVID-19
- The urban population who continue to choose to rent over homeownership
As prices keep hiking month-after-month, it goes to show the sheer resilience of the US housing market.
Despite highly controversial elections, lingering economic uncertainty, and the aggravated spread of COVID-19, buyers are rushing to secure the few houses listed for sale. This, of course, is good news for a savvy CRE investor like you.
Is Now a Good Time to Invest in Real Estate?
In case you didn’t know, we’re right in the middle of a sellers’ market. This is essentially a market offering more demand than supply and where inventory is low. So, this means buyers will have no option but to accept high-priced homes as there aren’t many houses to choose from.
This sort of market often leads to multiple buyers bidding on a single home. So, that’s great for sellers, but not necessarily buyers since they’ll need to dig deeper into their pockets to get what they want.
Back to our question, “Is it a good time to invest in a sellers’ market?” Going by Realtor.com predictions, it will not be a buyers’ market anytime soon. But that doesn’t necessarily mean you cannot buy. It does, however, mean looking for that “juicy” deal won’t be a walk in the park. It’ll take more time and effort than ever before.
One thing to remember is that real estate varies from city to city, state to state, and even county to county. So, take your time to weigh up your options before pulling the trigger. Below are hacks you can use to thrive in the ongoing sellers-friendly market:
Don’t be tied down by boundaries
To find the best investment deals, you might need to get out of your comfort zone and explore markets outside your locality.
While Mississippi is ideally a sellers’ market, that doesn’t mean every city shows the same numbers. Now is the time to be bold and chart new markets that might prove profitable down the road. If, for instance, you ply your trade in Saltillo, you can try your luck in Jackson (where the Zillo Home Value Index is actually $52,434 and the highest in the entire state).
With that in mind, investing in new markets means that you’ll need to be extra-vigilant in researching projected rental income and local competition to ensure viability and longevity.
Dive deeper into the numbers
Savvy CRE investors know it all comes down to the hard figures. In the current investment climate, where margins are super tight, ROI is extremely vital.
Thoroughly assess the average home prices in your locality, current rental market conditions, and job growth potential. Once you’ve got all these figured out, enter into a deal, knowing what margins you need to meet to hit your ROI ceiling.
Preparedness is the name of the game.
It’s common knowledge that in the real estate realm, hard numbers almost always trump emotions. In the existing CRE climate, you have to react swiftly. Else, you’ll be left chasing shadows and counting losses.
Know your budget and do your research, so when an investment presents itself, you’re ready to pounce. Even the slightest hesitation could see you losing out on highly-profitable deals.
Now is not the time for unrealistic offers and low-ball tactics. Make sensible offers that fit within your ROI and budget requirements. If the deal is sedentary or if the figures don’t add up, be quick to move on. Better opportunities await.
Seek out the help of real estate professionals
Even for long-serving CRE investors, navigating the waters of the ongoing sellers’ market can be tricky. And at a time when the market is experiencing cut-throat competition, it can be all the more daunting to remain profitable.
With deals flying off the market quicker than ever, you need a competitive advantage. What better way to get the upper hand than with a real estate expert? Enlist the assistance of an experienced commercial real estate professional to help you locate, negotiate, and close any deal on your radar!
Where Should You Focus? CRE Sectors to Keep an Eye on Right Now
Sharp-witted investors like you are constantly looking to reassess the sectors in which they channel their money.
After all, if grass is greener in a different sector, wouldn’t you want to know?
So far this year, we’ve already seen some positive shift towards three sectors in particular. These include:
Subsections of retail are performing pretty well, not just in Jackson but in the larger Mississippi area.
Neighborhood retail continues to stand strong, despite the advent of online shopping and prolonged shutdowns. This is because it provides the day-to-day conveniences of nearby residents.
While it’s true that neighborhood retail properties will continue to experience a drop in prices in the coming months, you can use this drop to your advantage by strategizing on one key thing: how safe it is.
Given that most retail centers were shut down at the height of the pandemic, you can expect that potential tenants today will look for neighborhood retail areas that are large enough to provide social distancing markers, physical barriers, HVAC systems, outdoor spaces, and air filtration.
If your neighborhood retail can provide such, rest assured that your investment will return in the next year or so.
Class B & Class C Office Space
While Class A office space tries to pick itself up from the repercussions of COVID 19, Class B and Class C are performing extremely well.
Micro-office units and coworking space (although controversial) continue to grow in popularity as more and more entrepreneurs launch online businesses and seek a physical location where they can work without distraction.
For starters, you can purchase a Class C office space and spruce it up, transforming it into a Class B office space. By updating its aesthetics and providing better management and security, the value of your space can instantly soar.
Again, office space continues to be an important show of status, pandemic or not. We as the Mississippi society simply don’t take businesses without physical locations as seriously as those that do. That might change in the long run, but for now, it remains an undisputed fact.
Let’s face it, someone has got to fulfill all of the logistics, warehousing, and distribution for all the online shopping going on at the moment. Industrial real estate continues to fill that void superbly well.
Now more than ever, customers are craving same-day and next-day shipping. This means online retailers have no option but to rent warehouses or distribution centers within close proximity to their customers. They also need to have more stock on-hand, which potentially increases their renting needs.
This presents you with the perfect investment opportunity.
An important thing to remember with industrial real estate investing is that you should never put your eggs in one basket.
Buying or leasing industrial property means that you’ll have your hands full with plenty of different options, so use this to your advantage.
As CRE investors, sellers, and buyers continue to wade the murky waters of a pandemic-ridden world, one thing is clear—we’re right in the middle of a sellers’ market, where inventory remains low, and demand is at an all-time high. Only those CRE investors who are bold, proactive, and meticulous enough in their ventures will succeed in the current conditions.
Here at Speed Commercial Real Estate, we would like to encourage you to take advantage of eager contractors and cheap commercial property prices to take the next leap in your CRE journey. If you’d like to learn more about Mississippi’s commercial real estate opportunities, feel free to contact us today!