Assessing the Value of Commercial Real Estate
Unlike equity investors with immediate access to stock market values and news, real estate investors do not enjoy readily available market figures, making it harder to decipher the worth of commercial assets. In fact, with property rents due the first of the month plus a 15-day grace period, investors may just now begin to understand the state of rental payments and cash flows from tenants.
Market Sectors
Logistics-related sectors. The value of commercial real estate connected with logistics, such as industrial or warehousing facilities, has increased sharply due to high volumes of online purchases. Estimates that previously suggested a ten-year period for a vast move from brick and mortar retail into online purchasing now compress the timeframe to merely one to two years. The logistics areas that support the huge shift, including infrastructure, warehousing, and technology, will benefit.
Food and beverage retail. The retail sector, especially food and beverage-based retail, has been severely affected and recovery may take some time. These businesses are undergoing an intensely traumatic period.
Office spaces. Workforce changes may, in the long run, permanently transition typical office settings to work-at-home scenarios, especially for businesses or individuals finding the change comfortable or productive. But feeling cramped at home may lead many to wish to return to an office environment, albeit with more space. The pandemic has likely ruptured the trend of many workers in tight office spaces.
Apartments. This sector is receiving aid from the federal stimulus plan and support from Fannie Mae and Freddie Mac. In the long run, apartment rentals may recover more quickly than other sectors.
Despite economic uncertainty, thriving sectors or ones with high chances of recovery may still merit attention from current or potential commercial real estate investors.
For additional COVID-19 Thought Leadership and business resources from Miami Herbert Business School faculty, click here.
