Is it a good time to buy?
This is a tricky question. There are two problems with the commercial real estate market at the moment: 1. despite our great economy, the rest of the world isn’t as great which means lower interest rates etc. 2. Our great economy is fuelling a building boom. This means new commercial real estate. Why is this a problem? Why buy old when you can buy new.
Many believe that older, less expensive commercial real estate properties will always have a buyer – and businesses willing to take up the space, but is that true? Older buildings often need work, which is more money being dumped in, on top of the purchase price. Businesses that lease these spaces might pay more in utilities if the structure isn’t sound, and may have to invest more to bring their interior space up to par. Rather than getting a deal on an older commercial space, and then investing a bundle updating it, why not just buy new and avoid that altogether?
Sure, new may be pricey, but it will likely be in a more lucrative location and be a turnkey investment. So yes, the sticker price of new commercial real estate may shock you, but what would you have spent on an older property, plus renovations? About the same? Maybe more.
What’s this mean for the long term?
The primary concern is a lot of abandoned or useless commercial real estate sites. Unused buildings can fall apart in a flash and begin looking unsightly. This is bad for the city and the value of surrounding real estate. You don’t want a mini ghost town developing in your commercial areas. Eventually, you have to wait for a big corporate buyer whose primary interest is in the land, and is willing to demolish the existing building(s). What do you think is the future for the cities older commercial real estate sites?