The Best Time to Buy Commercial Real Estate

It’s no secret that commercial real estate investment is a lucrative industry. Asking the question of when is the best time to buy is the most common concern of first-time buyers. Understanding that commercial property is a cyclical process is crucial before looking to buy. It’s helpful knowing that what has occurred in the past is likely to occur in the future in terms of financial predictions. This type of trend will likely continue indefinitely. Commercial property for sale Westchester NY services has a professional team of experts to give you great advice if you’re interested in investing.

                                                                                            Photo Credit:   Reco-Play

                                                                                           Photo Credit: Reco-Play

Investment Opportunity Cycle

A number of primary pressures affect the actual prices of commercial real estate. These include:

  • The state of the economy
  • Demand for properties at the time
  • Interest rates associated with the financing deals

The CRE Cycle

There are 4 phases to the commercial real estate cycle:

Recovery:

In this phase, the market tends to improve and prices begin to recover. Owners work on improving their property, as well as trying to maximize rental rates. It’s ideal to buy real estate in this phase. However, being able to identify the beginning of recovery is difficult because the market can still feel like it’s in recession.

Expansion:

The commercial property cycle enters this phase when the number of interested investors grows and the market expansion goes up. This stage is called the ‘boom’ of the market where property values are increasing at a very fast pace. And, in many instances, to their absolute highest levels reached. Because demand gets high, this causes prices to steadily rise, too. This phase is the most crucial when thinking about buying property. It’s also the absolute best time to sell. During expansion, supply and demand are in perfect symmetry.

Contraction:

Vacancies increasing and prices falling occur during this phase. At this point, the market has become overabundant. This means that financing becomes more difficult and more expensive. Investors will typically withdraw from the market since the vacancy rates rise and the prices decline. Contraction is also called hypersupply. Rent growth will be starting to decline, albeit while remaining positive.

Recession:

Since supply outweighs demand, this produces higher vacancies. During a recession, rent growth is normally at a level that’s below the rate of inflation. It becomes increasingly difficult for potential investors to find the appropriate financing. Furthermore, commercial property sellers face more struggle trying to get rid of the vacant spaces they currently own. It’s common for commercial property prices to fall way below their normal market worth. As a result, this is the best time to invest in commercial property because of the low prices and available vacancies.

Article Resource: Home Insider