Commercial Property Investment Comeback

Where’s the smart money going? 

Savvy property investors remain wary of the current housing rebound.  This is mainly due to heavy institutional investing in rental residential properties over the past couple of years, which have acted to buoy up the previously moribund housing arena.  And with almost one-quarter of all recent home purchases being gobbled up by said institutional investors, where should the average property investor be searching for high returns these days? 

Clearly, this new housing marketplace, especially in previously hard-hit areas like Miami, Phoenix, Las Vegas and parts of southern California, continues to show such marked gains as to make the underlying economic factors for new-buy positive cash flows untenable, due to the rapid increase in property valuations.  Simply put, in many markets, there are no bargains to be found right now where the metrics make sense, and that will throw off enough positive cash flow to yield even a modest Return On Investment (ROI). 

The current trend away from residential rentals 

Large investment firms have already begun to stop their residential buys due to this inflation in market values, and smaller investors naturally are shunted to the sidelines when the cash flows make no particular sense for them, at least in the short term.  In fact, many large institutional investors may already be starting to unload some of the foreclosures they previously bought (and are now weaker-performing residential properties), but nevertheless have soared in valuations since they were bought over the past two years.  They are now selling them and re-investing their profits.  And where are they reinvesting, you might ask? 

Commercial property as prime reinvestment arena 

Large commercial investment companies, such as Simon Property Group, are doing much more buying and development of new retail outlet malls across the world of late.  They are creating new mall centers, purchasing existing ones, as well as creating mergers with other commercial institutions to meet the expected need for more retailers world-wide over the next several years.  Smaller investors have the ability to buy in with shares of these large commercial companies, as well as investing on a small scale locally, in their own local communities, by sticking with local commercial retail space buildings to meet the expected demand for new retail space. 

Technology sector investing 

Another area smaller investors should consider is commercial data center building investment.  Technology growth continues to expand in the real estate sector of late.  And new data center investment is way up to meet the demand.  One particular technology real estate company is CyrusOne, which specializes in the creation of new data centers world-wide.  The current expansion in the data industry continues to fuel the need for more construction of facilities to house these huge data centers. 

So smaller investors should look to the potential returns from investment in these companies that specialize in data building investments as another way of bypassing the current dearth of high-ROI producing residential investments.  With the housing industry making a sketchy comeback, and underlying metrics in the housing arena being very suspect, it’s time to consider commercial real estate alternatives in the interim.

 

photos courtesy of worldpropertychannel.com, quickenblog.com, dcmud.blogspot.com, intomobile.com, hpcwire.com