Need some optimism in these challenging times? Tulsa, Oklahoma-based Stan Johnson Company recently released a report listing five reason why investors should continue to invest in commercial real estate even as the COVID-19 pandemic continues.
As the report says, it’s tempting to take a “wait and see” approach to investing in commercial real estate. Those investors who do, though, risk missing out on opportunities.
Here are the five reasons Stan Johnson Company lists for making an investment in CRE now:
CRE is a long game
As the report says, commercial real estate remains one of the safest investments. CRE comes with lower risk and higher yields, perfect for investors seeking a safe haven.
“Investors, particularly net lease investors, should focus on what the sector has historically been good for: long-term leases, stable tenants and strong demographics,” said Asher Wenig, senior director and partner with Stan Johnson Company. “Whether you’re focused on net lease or other CRE sectors, stick to good real estate fundamentals and play the long game.”
Strong economic fundamentals
Before the COVID-19 pandemic hit, the economy was strong. Unemployment was low and GDP was up 4 percent in 2019, continuing a period of growth of more than 10 years. Now that non-essential businesses are being forced to close across the country and many face unemployment, the prediction is that near-term economic growth will slow temporarily.
Stan Johnson Company, though, says that it’s also likely that confidence in the economy will return quickly once the threat of COVID-19 is controlled.
This year started strong across the single-tenant net-lease sector, with more than $13 billion in investment sales volume reported.
Given that, there is hope that the economy and commercial real estate will rebound quickly once life in the United States returns to normal.
“Even if we witness a pause that causes activity levels to be lower than predicted, the market is well-positioned to have a positive year overall, given the momentum that carrived over from 2018 and 2019,” said Lanie Beck, director of corporate research, marketing and communications with Stan Johnson.
Interest rates remain incredibly low
Stan Johnson said that recent cuts to interest rates will help support economic growth and activity, and it appears that interest rates won’t be rising anytime soon. That makes this an especially attractive time to invest in commercial real estate.
“Buyers will want to secure loan commitments quickly and realize that lenders may work more slowly than usual in some cases,” said Anne Perrault, director with Stan Johnson.
Quality real estate is in high demand
If you’re a seler today, your commercial real estate asset could be in high demand. That’s because there’s been a recent imbalance in supply and demand, as properties of high quality trade quickly.
The Stan Johnson report says that 1031 exchangers are especially hungry for quality investments. That’s because even a quick shift in market conditions doesn’t erase the desire of these investors for tax savings. Smart buyers will continue to benefit from newly listed, high-quality real estate assets and should pursue those deals today.
Opportunities to diversify
Investors whose portfolios are heavily weighted toward a single asset type have an opportunity now to diversify.
“Consider purchasing an anchored retail center with a grocery component or other ‘necessity’ retail service tenants,” said Margaret Caldwell, managing director and partner with Stan Johnson Company.
Such centers continue to trade at historically low cap rates, which are expected to remain low regardless of COVID-19’s impact. Investors chasing yield can take advantage of low interest rates and receive highly levered returns by investing in power centers and other multi-tenant retail.
Pat Weibel, director with Stan Johnson, predicts that freestanding grocery stores and grocery-anchored centers will be popular in the short-term. He says the same about last-mile logistics facilities.
“The focus these last few weeks have been on ‘flight to quality,’ but that’s good advice to follow when considering your long-term investment strategy, too,” Weibel said.
