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Investing in Commercial Real Estate to Accelerate Growth

Commercial real estate experienced volatility in the first half of 2021, with high demand countered by skyrocketing materials costs, labor shortages and supply chain challenges. Even as many of these factors continue to normalize, businesses should think about how the following longer-term trends may impact their operations, as well as opportunities for growth.

Investments in industrial properties will remain robust due to sharp increases in digital commerce.

As the shift from brick and mortar to an expanded online delivery network continues, increased industrial square footage is needed to house inventory and accommodate new equipment for digital fulfillment.

Multi-family real estate is expected to grow.

While some millennials are moving into cities to take advantage of urban lifestyle opportunities, other professionals are relocating to the suburbs, in part due to the influx in remote or hybrid work models. Investments in multi-family real estate typically provide a steady cash flow due to high occupancy rates, unit leasing at or above current market rental rates and low expenses.

buildings

The retail business model will change rapidly.

Shopping centers will likely need smaller sales floors, larger stock rooms and additional parking spots for curbside pickup to accommodate expanded online orders and fulfillment. Retailers also will focus on optimizing their digital commerce channels, including websites, mobile and social media.

Corporate office space will evolve.

To protect employees and attract talent, companies may want to build, renovate or purchase buildings that can offer a more “COVID-19-friendly” work environment to include additional space, improved air filtration and touchless technology.

The market is poised to support growth with excess capital and liquidity and interest rates that are expected to remain low through 2021. As a result, certain businesses may be ready to purchase, renovate, refinance or build.

Here are some strategies your business can take to invest in physical space to expand or accelerate cash flow.

  • Capitalize on a low interest-rate environment. If you are not yet ready to start a construction project, consider investing in property for your future plans while rates are favorable. It also may be an opportune time to refinance and use your equity to fund plans for renovation or expansion. Or, look into using an interest rate derivative, or swap, to fix the rate on your loan, adding certainty to your long-term borrowing costs and mitigating your future exposure to rising rates.
  • Invest in warehousing or automation to support increased digital commerce.
  • Sell/lease properties or downsize to save costs and increase cash flow if your workforce has become more remote.

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